Financial Mirror - September 5

Financial Mirror - September 5

Financial Mirror - business news and solutions

September 5 - 11, 2012
FinancialMirror.com
2 | NEWS
Pressure mounts on ECB to cut bond yields
G Markets
eager for ECB bond-buying plans, bank likely to remain coy, while Draghi says ECB could buy maturities of up to 3 years
premia of sovereign bonds now reflect not just the insolvency risk of some countries but even an exchange rate risk, which there should not theoretically be in a currency union," Asmussen told a banking conference in Frankfurt. "The markets are pricing in a break-up of the euro zone. For a currency union, such systemic doubts are not acceptable." However he also said it was crucial to ensure that ECB decisions did not reduce pressure on governments to reform. That is one reason why the central bank is unlikely to reveal all details of the plan on Thursday. IMPORTANT DATES "I'm not sure the ECB is ready to publish the nitty-gritty and the procedures of interventions, because no country has asked (for bailout) and because there are still some important dates in the month that require prior approval," said Menuet. Germany's Constitutional Court will rule on September 12 whether the euro zone's permanent bailout fund is compatible with German law, a vital condition for it to come into force. EU finance ministers meet in Nicosia next week to discuss possible additional aid for Spain and Greece as well as plans for joint banking supervision. Hollande said an October 18-19 EU summit could take decisions on support for both Spain and Greece. Spanish Prime Minister Mariano Rajoy said on Sunday Madrid would consider seeking extra aid on top of an up to 100 bln euro rescue of its financial sector but sees no need for new conditions beyond the EU guidelines it is already implementing. Rajoy added he wanted to see details of the ECB's programme before deciding whether to proceed with a request. EU paymaster Germany and Draghi have said any bond-buying support would require strict policy conditions and enforcement. German Chancellor Angela Merkel and Rajoy will try to thrash out those differences at talks in Madrid on Thursday, just as the ECB is due to unveil more on its plans. Spain and Italy have been sucked deeper into the crisis as investors increasingly doubt their capacity to repay their debt. Yields on their bonds have risen to near-unsustainable levels. Draghi signalled last month he was ready to resume buying government bonds provided that the euro zone's rescue fund was also involved, and assisted countries accepted strict policy conditions with international supervision of compliance. Now markets want to hear details of the policy. But internal ECB tensions, fuelled by Bundesbank resistance to bond-buying, and the ECB's eagerness to retain an element of surprise mean it will reveal only a partial outline on Thursday.
France and Italy piled more pressure on the European Central Bank on Tuesday to agree steps this week to reduce crippling borrowing costs for southern euro zone states. But the bank is expected to outline rather than detail its strategy on Thursday in order to keep the pressure on politicians to bring their deficits and debts under control. Italian Prime Minister Mario Monti and French President Francois Hollande said after talks in Rome that European institutions must act to bring down the bond yields of countries that are unjustifiably penalised by markets. Monti said he expected measures to remove "the serious obstacle of (bond) spreads that have no underlying economic justification" for Italy and other countries "doing our homework" on economic reform and deficit reduction. The Bank of Italy said in a study that economic fundamentals justified a risk premium of 200 basis points - or two percentage points - over benchmark German bonds, rather than the 450 basis points that markets were charging at end-August. Hollande said high debt yields facing countries such as Spain and Italy were not justified and it was the role of EU institutions, including the ECB, to bring them down. ECB President Mario Draghi will try to back up his pledge to do "whatever it takes" to save the euro when he presents some details on Thursday of a new bond-buying plan that is transfixing markets hopeful it can ease the euro zone crisis. Investors are on tenterhooks after brinkmanship in the ECB's internal negotiations over the plan was played out in public last week, with one newspaper reporting that Bundesbank chief Jens Weidmann even considered quitting. The ECB is being forced to take a greater role in fighting the debt crisis while governments negotiate legal and political hurdles to coordinating a longer-term response, but Germany's Bundesbank wants to limit the scope of ECB action. "Draghi certainly has to present something," said Guillaume Menuet, economist at Citi. "A document of some sort, something of substance is what markets want to see in order to justify valuations." Spanish and Italian government bond yields fell on Tuesday as investors welcomed leaked comments Draghi made behind closed doors in the European Parliament on Monday, suggesting the ECB could buy bonds with a maturity of up to three years at the long end of market expectations. ECB executive board member Joerg Asmussen, the most senior German at the bank, spelled out one key argument for central bank action, saying it was unacceptable that financial markets were now pricing in the risk of a euro break-up. "The risk
BUNDESBANK OPPOSITION The Bundesbank vehemently opposes government bond purchases, saying they come close to breaching the taboo of central bank financing of governments, and its criticism has not let up. Its previous head, Axel Weber, resigned in opposition to a previous bout of bond-buying by the ECB. Disagreements within the policy-setting Governing Council may keep the ECB from giving too many specifics. The ECB also wants to keep markets guessing about its bondbuying moves to discourage speculators and maintain pressure on governments to pursue economic reforms and fiscal discipline. Even in the absence of inflationary pressures, the ECB must show its primary focus is still on guarding price stability. Sources have told Reuters the ECB has considered setting interest rate bands - rather than a specific cap - as internal guideline for intervention, but it would not publicly declare any target for yields or spreads that would force it to enter the market when the barrier was exceeded. Weidmann's reported threat to resign, though not confirmed, has piled pressure on Draghi to mollify opponents of the plan without tying it up in so many knots it is rendered ineffective. One way could be to insist that the IMF - seen as tougher than EU institutions - is involved in setting conditions for bailouts, and hence for bond buying, as suggested by the ECB's Asmussen. While the bond-buying plan will be the main focus of Thursday's meeting, there is a chance the ECB will also cut interest rates from 0.75% - already a record low - due to a deepening slowdown in the euro zone economy.
Irish minister hints at public sector pay cut
The Irish government may be forced to cut public sector wages, breaking a key pay agreement with unions, if spending targets under its EU/IMF bailout are to be met, according to a senior government official. Health minister James Reilly, whose department is under pressure to rein in a large overspend, was the first minister to raise the prospect of public pay cuts in the forthcoming budget. That would require a renegotiation of the so-called Croke Park agreement, a 2010 deal widely credited with sparing Ireland the kind of industrial action that hit fellow EU/IMF aid recipient Greece. Reilly told the state broadcaster RTE his department would have to find 700 mln euros of savings in its budget next year. "If 70% of my budget is pay and I've exhausted all my options, then clearly pay becomes an issue," Reilly said. Ireland's health department, which accounts for almost a third of all government spending, had to cut 500 mln euros this year but a European Commission report found that to date, only 22% of that had been achieved. The department said on Thursday it would cut back on care for the elderly and overtime pay to find 130 mln euros of new savings. Reilly's comments reflect tensions between his centre-right Fine Gael party and the centre-left junior governing partner, Labour, over plans for December's budget. A Labour Party minister last week said the austerity budget could weaken the coalition government, though it still had a "middling to good" chance of surviving into next year. The sector had seen its wages cut by an average of 15% before the Croke Park agreement was struck, six months before Ireland entered its bailout programme. The deal, which promised there would be no cuts in basic pay in exchange for reform of working practices, is due to run until 2014.
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FinancialMirror.com
September 5 - 11, 2012
CYPRUS | 3
Post it!
Couriers look to January 2013 liberalisation
Transport and courier companies are rubbing their hands with the hope of grabbing a piece (or a large chunk) of the local postal sector that is expected to be liberalised in four months' time. Despite a 2.1% drop in the "Postal and Courier activities" turnover in the first half of this year, according to the latest statistics, companies are considering entering the sector worth about 16 mln euros where conventional postal services have a poor reputation of slow deliveries and high rates of lost mail. Strangely enough, many workers at the state Postal Service monopoly have recently been supportive of the liberalisation or even privatisation, with the strongest opposition coming from the communist-led administration and the centre-right Diko, whose members are traditionally entrenched in civil service and the trade union, Pasydy. Already, the postal and communications regulator, GERIET, has recommended the harmonisation of conventional retail postal rates from the beginning of this year in order to allow potential market entrants to adjust their plans in time for the sector's full liberalisation on January 1, 2013. The biggest interest for the likes of TNT Cyprus, GAP Vassilopoulos (FedEx and Akis Express), market leader DHL, AirTrans Express Service (UPS) and Greece's ACS Courier are the bulk-mail deliveries of large-volume envelopes, leaflets and magazines from telecom providers and cable TV companies, as well as bills and notices from banks, insurance companies, CSE-listed companies, public service organisations and utilities (EAC, Cyta, Water Board, etc.) At least two transport and courier companies have told the Financial Mirror that they are keen to enter the market with a network of `delivery boys', while others are considering enhancing their current fleet with additional moped riders. On the other hand, the Postal Service has been improving facilities and opening new post offices around the island in recent years, while it also concluded a franchise deal with MoneyGram to provide overseas payment services to foreign workers and students based in Cyprus, earning a healthy income on commissions. POSTAL FINE Meanwhile, Postal and Telecoms Regulator Polys Michaelides is considering slapping a hefty fine on the Cyprus Postal Service for setting the basic tariff of 34c for letters under 20 grams without any justification, and also for not submitting market valuations for the past few years. The Postal Service will probably argue that this rate was set back in 2003 and was based on the judgment of senior managers, while the Regulator might add that any pricing should include a costing and financial study, something that was never done. The Postal Service has also been reaping in a healthy windfall as it has set a rate 34c for under 20gr and 43c for up to 100 gr, while the benchmark entry-level envelope should have been for 50gr, effectively blocking any new entrant into the market. It seems that even Auditor General Chrystala Yiorkadji is not too happy with the way the Postal Service is run saying that it adopted new accounting practises in 2007 with a two-year delay, subsequently paying fine of 2,000 euros per year for each delay. In October 2008, the Regulator slapped a hefty 100,000 euro fine for not submitting audited accounts for 2007. Furthermore, an annual fine of 130,000 euros has been imposed for the financial years 2007, 2008 and 2009 for not providing the universal postal service as per the new EU regulations. It seems, however, that high-ranking civil servants have never been too concerned with this hiccup as they considered any fine as being in fact irrelevant since the money would be paid from one government department to another.
Shiarly sees economy shrinking, deficits rising
Cyprus will remain in recession in 2012, finance minister Vassos Shiarly said on Monday, with economic output retreating by up to 1.5%. Shiarly also said lower growth was feeding into higher deficits, which by the latest projection was anticipated to hit 4.5% of GDP in 2012. At present, he said, Cyprus's 17 bln euro economy was expected to contract "between 1 and 1.5 percent" this year. Authorities had earlier projected growth flatlining. "This is not a situation which affects just Cyprus ... and it is unavoidably leading to an economic contraction," Shiarly told journalists, referring to a Europe-wide downturn. "It is important to bring order to our public finances for us to create conditions fostering growth." The projected fiscal shortfall is a massive jump from promises of a deficit of no more than 3% earlier in the year. Shiarly said he expected about one point would be shaved off the deficit forecast with fiscal consolidation measures generating savings of between 150 and 200 mln euros. But those measures have been delayed considerably either by the government wanting a consensus among the powerful labour unions on issues like pensions reform, or from a hostile opposition-controlled parliament rejecting government tax bills. As the euro zone's third smallest economy, Cyprus has struggled to keep its head above water since its exclusion from international capital markets a year ago and massive exposure of its two largest banks to Greece. The country, which now holds the rotating EU presidency, was forced into seeking a bailout in June to buffer its banks. It has also sought a bilateral loan from Russia, which came to Cyprus's aid in late 2011 with a 2.5 bln euro loan to cover fiscal requirements. A second 5 bln euro loan has also been promised. Two visits by the troika team of inspectors from the European Commission, the IMF and the European Central Bank have been inconclusive. Shiarly said new contacts on September 17 would define the dates of the next visit. "There are some areas where our side has different positions to those of the troika, but I wouldn't say we are in disagreement," Shiarly said.
September 5 - 11, 2012
FinancialMirror.com
4 | CYPRUS
Sylikiotis meets Delek delegation
The possibility of Delek's participation in the hydrocarbon exploration rights by Noble in block 12 of the Exclusive Economic Zone (EEZ) as well as recent developments on natural gas exploitation in Israel were discussed between Commerce, Industry and Tourism Minister Neoklis Sylikiotis and a Delek company delegation. Speaking after the meeting, Sylikiotis said that a consultative committee is looking into a joint request by Delek and Noble Energy so that the Israeli company can increase its interest in block 12 to 30%. Delek said it has already prepared the platforms which will be used in order to drill natural gas for Israel from April 2013 onwards. Noble started drilling in September 2011 and the initial data that emerged from the exploratory drilling found natural gas reserves of 5 to 8 trln cubic feet (tcf) with a gross mean of 7 tcf. A second licensing round for companies interested to receive concessions for exploratory drillings in Cyprus EEZ was concluded last May, resulting to bids by fifteen companies and joint ventures. Bids are being currently evaluated by the government.
BOCY H1 losses higher than expected
G
Higher writedown provisions in Greece push losses to 134 mln
troubles, including a takeover in Russian that is now being scrutinised. The bank needs to untangle itself from reports of inadequacies in the due diligence report conducted for the takeover of Uniastrum Bank in Russia, while the pressure remains for the removal of high-ranking officials, supposedly for rejecting favourable loan deals to pro-administration corporations and associations. Following the departure of former CEO Eliades, some reports have been critical of his compensation package, while others have suggested he took out large loans at favourable rates. Adding to all this, the Bank of Cyprus has to rebuild its reputation and revive the trust of the public after it was revealed earlier in summer that branch managers may have convinced customers to invest in securities that have seen thaeir values nearly wiped out. The Securities and Exchange Commission had said that the public documents for the issue of the securities was legitimate, while the Central Bank of Cyprus announced it had hired professional services firm Alvarez & Marsal to investigate why the two largest banks had to seek state support. However, it said that it could not force the two banks to return the money lost by the investors.
Cyprus hopes to get Israeli natgas by 2015
Cyprus could have natural gas from Israel in early 2015, if discussions on the supply of small quantities are completed by the end of the year, according to Trade Minister Neoklis Sylikiotis. The minister said Israel seems ready to supply a small quantity of natural gas for electricity production, ranging about 0.5-0.7 bln cubic metres imported in the form of liquefied natural gas. "The aim is to have natural gas the soonest possible", he said, adding that "if all these discussions are completed by the end of the year, then we can have natural gas in early 2015 at lower prices for 3-5 years". Sylikiotis said natural gas will be bought through the Electricity Authority of Cyprus, via a bilateral agreement or through an EAC agreement with the Israeli Electric Company. However, it is too early to talk about prices since the cost of transporting it must be considered, he said.
Bank of Cyprus reported increased first-half losses of 134 mln euros on Thursday, hit by a Greek debt writedown and higher provisions for non-performing loans in Cyprus and Greece. The losses were higher than the 107 mln euros reported in the first half of 2011 and far greater than the 114 mln euros expected from a Financial Mirror poll of analysts. The provisions for loan impairments shot up by 220% to 568 mln euros, from 183 mln in the same period a year ago, and will probably force the island's biggest lender to seek some 730 mln euros in government aid, far more than the 500m mln bailout need announced in June. Bank of Cyprus said earlier in August it was looking at swapping part of its loan book with a Greek bank operating on the island, probably Alpha Bank, as part of moves to strengthen its capital base and ringfence operations in Greece. The news could not have come at a worse time for the bank's new management, recently promoted CEO Yiannis Kypri and new chairman Andreas Artemi who stepped in this week after Theodoros Aristodemou resigned for health reasons. This follows the departure in summer of CEO Andreas Eliades, as losses in Greece have compounded the bank's
Popular posts record H1 loss on Greece
Cyprus Popular Bank, the island's second largest lender nationalised after booking heavy exposure to Greece, posted record first-half losses of 1.3 bln euros on Friday after jacking up provisions at its Greek operations. The 1.3 bln euro loss, against a 202 mln loss in the first half of 2011, incorporates a goodwill impairment charge related to Greek operations. Without that charge, the bank said its net loss reached 729 mln euros. Popular was part-nationalised in June after its regulatory capital was depleted from heavy exposure to Greek sovereign debt restructured earlier in the year. It required 1.8 bln from the state, which now has an 84% equity share in the bank. Popular said its deposits had fallen 22% on a yearly basis, mainly due to a reduction in deposits in the Greek market, to 18 bln euros. Its net loan portfolio fell 10% to 23.1 bln. The bank said it increased its provisions by 384%, reflecting ongoing poor financial conditions. On a quarterly basis, its non-performing loans in Cyprus rose 4.15 percentage points to 13.6% of its total loan book in the second quarter of 2012 and to 32.6% in Greece, a 9.89 percentage points increase.
No news from Russia on a 5 bln loan
Contacts with the Russian Ministry of Finance on a bilateral loan continue, but no new information has been provided by the Russian authorities, Finance Minister Vassos Shiarly said this week. The daily "Politis" reported that Moscow has notified Nicosia that a decision on a 5-billion-euro loan to Cyprus has been reached on a political level. "There is no information from the government of the Russian Federation on any approval of the loan request submitted by Cyprus," Shiarly said. Shiarly said earlier on Monday that the request has been made and that his Ministry is ready to provide the Russian authorities with any data required, adding that "this (the loan) does not hamper the process with regard to our application to the EU bailout mechanism." Government Spokesman Stephanos Stephanou said on Tuesday that Moscow has not taken a decision on Cyprus' request for a new bilateral loan yet and that no reply has been conveyed to Nicosia as of now. She spokesman said that when Russia finally takes a decision, the State Duma has to approve it as happened with the first 2.5 bln loan in 2011. He also stressed that the conditions of the loan and the procedures will be made available to the public and there will be transparency.
Hellenic Bank reports H1 profits, despite crisis in Cyprus and Greece
Hellenic Bank reported net first half profits of 15 mln euros, a recovery from the 29.2 mln losses it reported in the same six-month period last year, and approaching the 2010 H1 profits of 16.7 mln. The island's third biggest lender, that contained its exposure to the Greek debt market to a mere 110 mln euros, also reported a 25% increase in revenue and a 9% reduction of operation costs, bringing down its cost-to-income ratio from 73.3% in the first half last year to 46.5% this year. The bank successfully raised some 47 mln euros in a rights issue with most of its shareholders, including the Church of Cyprus, subscribing to the issue. Hellenic also said that its balance sheet remained unchanged in H1 2012 from H1 2011, with 5.6 bln euros in loans and 7.6 bln in deposits, despite announcing a 7% improvement in deposits for the first six months of the year.
Ermes posts loss as downturn hits high street
Retailer Ermes, operator of the Debenhams chain of stores on the island and part of the NK Shacolas dairy-totelecom giant, has swung to a 2.5 mln euro first-half net loss on lower sales to recession-hit consumers. Ermes, which also runs a household items chain and is an affiliate of the operator of the island's two airports, said it expected positive results for the second half in its business, which it said was highly seasonal. The group had posted a 107,000 euro net profit in the first six months of 2011, and a 1.42 mln profit for the full year. The group said first-half turnover fell 6.6% in line with a 2.3% contraction of the island's economy in the second quarter.
Cyprus and Troika "could agree" on a first draft Memo
The first draft of a memorandum between the government and the troika inspectors from the European Commission, ECB nd the IMF could be agreed during their next visit to Cyprus, Finance Minister Vasos Shiarly said on Monday. Speaking to the press, the Minister said that consultations with the troika continued in August via teleconference and are at a very advanced stage. He said the troika has sought clarifications on certain issues and it is expected that these will be clarified in the next couple of weeks. Shiarly said that the state can cover its short-term financing needs until October, adding that the state continues to fulfil its obligations and meet deadlines without any problems, referring to a loan repayment in August of 450 mln euros to the banks. Similar obligations in September, worth 380 mln, will also be met, he said. The payroll of civil servants is not included in these figures.
Industrial output tumbles 10.3% y/y in June
Industrial production continued to slide in June, recording a fall of 10.3% compared with June 2011 according to the latest figures from the Statistical Service. The Manufacturing sub index slide even further, recording a decline of 11.4% compared with June 2011. During the period January - June 2012 the industrial production index recorded a decrease of 10.6% compared with the same period of the previous year. Meanwhile, industrial output prices have been rising despite weak demand. The prices index for July 2012 reached 139.7 (base 2005=100), recording an increase of 0.3% compared with June 2012. The manufacturing the prices subindex rose by 0.4% compared with June 2012. For the period January-July 2012 the industrial output prices index rose by 7.9% compared with the corresponding period of the previous year.
FinancialMirror.com
September 5 - 11, 2012
CYPRUS | 5
Investigating the banks
The banks that had once been the pride of Cypriot business are in dire straits, not only financially but also under suspicion of some sort of malpractice, or worse. The banking disaster has cost the Cypriot people and the economy dearly. Many Cypriots have lost most of their savings. Pension funds have been decimated. Loans are difficult to obtain. Jobs are threatened. How did this come about? Why is it that the two major Cypriot banks have had to ask for state support? It has recently been announced that this will be the subject of an investigation. It is important that any such investigation be carried out with impartiality and with sensitivity. The international reputation, the credibility and the future viability of the islands leading industry is at stake and with it the jobs and fortunes of many of its citizens. The Greek Bond Disaster Any explanation of the current bank situation has to consider that the disaster that has befallen the Cypriot banks would not have happened but for their investments in Greek sovereign debt. Their holdings of Greek bonds, originally worth many billions of Euros, were reduced to a fraction of their value when Greece defaulted on this debt, the so called "haircut". Those who are looking for a simple cause may be disappointed. There is never just one "cause" for an event. All events take place within the context of numerous circumstances which also have an influence. These events can be considered in two categories. First, there are the events external to the banks over which they had no control. Secondly there are internal managerial decisions made by the banks themselves and for which they are responsible. External Events Behind the Haircut Back in 2010, Jean-Claude Trichet, the then president of the European Central Bank (ECB), stated in no uncertain terms that he was opposed to any haircut of Greek bonds. He opposed it on principle. Such a devaluation would undermine confidence in the Euro zone. Leading banks around the world had invested heavily in the sovereign debt of Greece and other Euro zone countries. As members of a common currency union including some of the world's richest countries, a default on their sovereign debt was almost unthinkable. In those early days, few investors considered it a serious risk. Subsequent events have shown that Trichet was right. After Greece defaulted on its debt, confidence not only in Greek finances but also in the sovereign debt of other Euro countries plunged, eventually driving up the cost of borrowing by countries such as Spain and Italy to unsustainable levels. These are only some of the main external events leading to the default on Greek sovereign debt and the banks subsequent requirement for state support. One could look even farther back. If Greece had not been allowed to join the Euro or if it had not borrowed so much etc., etc., again things might have been different. Management Decisions Within the banks themselves, there were also decisions which if they had been different might have avoided the current debacle. Reports indicate that some significant percentage of the Greek bonds were sold before the haircut only to be repurchased. If so, why? Any investigation would have to clearly distinguish between bad management decisions and some form of fraud. Bad decisions happen in all sorts of companies, indeed all companies. They are not necessarily a crime. But recently there have been reports that there were also management actions bordering on malpractice. Should these be investigated? Certainly. What about the managerial role of government? Now that Laiki has been nationalised � the government is responsible for its management. Investigations here should also include recent managerial decisions made under government ownership. The difficulty and sensitivity of the task should not be underestimated. The banks depend for their future on the confidence of international depositors and investors. These see a country which is in deficit and dependent on the mercies of the troika. It is governed by a Communist party which has publicly stated its distrust of markets and indeed the capitalist system. Having taken over Laiki Bank, the government now appears to be applying some of the same methods that have proved their effectiveness (or otherwise) in other nationalised industries such as Cyprus Airways. There have been reports that new bank board members have been chosen with emphasis on their party affiliations rather than their competence. Hopefully, this is not the case. Should the investigation look into this? Certainly. The credibility and future viability of the most important industry on the island is at stake.
By Dr JIM LEONTIADES
Cyprus International Institute of Management
Unfortunately, toward the end of his term Trichet was persuaded to change his mind. He eventually agreed to a haircut of 21 % on Greek bonds. If things had stopped there � we would not be experiencing the current bank crisis. But, this was not to be. The Greek economy continued to worsen. The decision was made to shift more of the burden onto private bondholders, including the banks. The haircut was then raised to 50% of the face value of the Greek bonds. Even this might have been a level which the Cypriot banks could manage. However, during negotiations between Euro Zone and IIF (the International Financial Institute) , the goal posts were moved once again. The haircut on the face value of the Greek bonds was finally decided at 53.5%. Taking account the new interest rate which was also renegotiated, the final reduction on the present value of the bonds finally reached over 70%. Once this degree of haircut was decided, the problem of the Cypriots banks was in effect unavoidable.
September 5 - 11, 2012
FinancialMirror.com
6 | COMMENT
Glass houses or a case of Jekyll and Hyde?
EDITORIAL
What a sad and sorry state we have reached when all the government spokesman can make comments about is the anti-capitalist policy of the Communist government and the administration's favourite subject of trashing the opposition. What Stephanos Stephanou has not yet realised (or perhaps he has, but just keeps taking orders from the Palace) is that by constantly referring to the "criminal mistakes of banks and bankers" and the "criminal negligence of the supervisory authority" he continues to cause much harm to the island's financial services sector, which this government supposedly has a duty to safeguard as the primary pillar of our economy. The spokesman's actions could even backfire considering that the government has painstakingly sought out an external consultant allegedly to investigate the banking crisis, but could prove to be on an inquisition, depending if the mandate includes specific questions aimed at pointing the blame at specific people. In effect, the investigation by Alvarez & Marsal has been tainted. Too bad that the bankers' association has chosen to distance itself from the crisis as well, instead of playing a leading role in helping to resolve it. Meanwhile, Mr Stephanou is so generous with the adjective "criminal" that he has forgotten the blame that was apportioned to President Christofias for his responsibility in the July 11 deadly blast at Mari last year, having also used his presidential privilege to undermine the independent inquiry into the matter. The spokesman calls for populist trials, probably in the same way that people were persecuted during the darkest history of communist China, but he says nothing about the meddling in the affairs of local banks and the unilateral assistance afforded to the Russian central bank that has demanded vital information about Putin's critics in Cyprus. He who lives in a glass house shouldn't throw stones. The old communist propaganda handbook suggests that a blanket denial of anything wrong may even help in the cover up, or so some believe.
Federalism or Bust for Europe?
August was quieter than feared on the European bond markets. So, while resting on Europe's beaches and mountains, policymakers could take a step back from the sound and fury of the last few months and think about the future. Is the eurozone sleepwalking into becoming a United States of Europe? Is it exploring uncharted territory? Or are its constituent nationstates drifting apart? To answer these questions, the best starting point is the US. The model of a federal union that emerged from its history consists of a single currency managed by a federal agency; closely integrated markets for products, labor, and capital; a federal budget that partly, but automatically, offsets economic disturbances affecting individual states; a federal government that assumes responsibility for tackling other major risks, not least those emanating from the banking sector; and states that provide regional public goods but play virtually no role in macroeconomic stabilization. This model served as a template for the European Union's architects, notably for the creation of a unified market and a common currency. But, in several respects, Europe has diverged significantly from the American model. First and foremost, Europe has not established a federal budget. Back in the 1970's, there was still hope that common spending would eventually amount to 5-10% of EU GDP, but this dream never materialized. The EU's budget today is no larger than it was 30 years ago: a meager 1% of GDP. Unlike in the US, where federal public spending grew as a consequence of the creation of new expenditure programs throughout the twentieth century, public spending was already high at the national level when Europe began to integrate. Significant federal spending programs could have emerged only
By JEAN PISANI-FERRY
Director of Bruegel, an international economics think tank, Professor of Economics at Universit� Paris-Dauphine, and a member of the French Prime Minister's Council of Economic Analysis
from the transfer of existing national programs to the European level. Not surprisingly, such transfers were strongly resisted. More recently, the eurozone has begun to create a system of mutual insurance among member states. Since 2010, assistance has been extended to Greece, Ireland, Portugal, and now Cyprus. Spain may soon follow suit, with a particular focus on support for its banking sector. So a specific pattern is emerging: states help each other. But solidarity is not free. It is conditional on beneficiaries' having signed on to a fiscal treaty that commits them to budgetary responsibility and makes them liable to quasi-automatic sanctions. Moreover, assistance requires that beneficiaries implement negotiated measures and accept close external monitoring of policy developments. In other words, the price of solidarity is limited sovereignty. Unlike in America, however, EU member states' governments � and, increasingly, their parliaments � are calling the shots. Because assistance does not rest on federal resources, but rather on the pooling of national resources, creditor states inevitably demand more power in exchange for providing more support to their neighbors. As a result, currency unification has not brought Europe closer to the US; on the contrary, it has pushed Europe further away. In the US, the federal government acts as an overall shield against common risks and provides automatic, unconditional support to states in trouble; but, in the end, it does not come to
the rescue of a defaulting state, nor does it take over its government. In Europe, by contrast, there is almost no aggregate shield and almost no automatic support for member states in trouble � better-off states simply extend a conditional helping hand to prevent default. So, while US states compete with the center for power, in Europe they increasingly compete with each other. This inter-state rivalry � at times bordering on acrimony � is what makes the politics of European integration difficult. All federations have experienced periods of tense relations between the federal and state governments. But to accept that your neighbors look over your shoulder and tell you what to do is one degree more dreadful than to accept oversight from the center. Indeed, a major problem with the current state of affairs is the weakness of EU institutions that are in charge of advancing the common interest and that are accountable to Europeans as a whole. Common European direction cannot emerge from the calculus of national interests by governments and parliaments that are accountable only to national voters. The big question to which nobody has a clear answer is whether Europe is in the process of inventing a model of its own, or has only taken a detour from the inevitable choice between disaggregation and convergence on the standard federal template. One solution could be to provide national representatives a venue to convene for European-wide debates. Another would be to transfer the insurance role to a federal institution accountable to the European parliament. Whatever route it takes, Europe in the coming years will have to address the weak representation of the common interest � or else admit that no such common interest can justify remaining on the path of integration.
� Project Syndicate, 2012. www.project-syndicate.org
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"In Pursuit Of Happiness" at UCy lecture
Angus Deaton, Dwight D. Eisenhower Professor of International Affairs and Professor of Economics and International Affairs at Princeton University, will give a lecture at the University of Cyprus on the occasion of his declaration as an Honorary Doctor of the Faculty of Economics and Management. His speech entitled "In Pursuit of Happiness" will take place on Thursday, September 6 at 7pm, at the Auditorium Hall of the University of Cyprus (75 Kallipoleos Street). His lecture will focus on understanding happiness. Everyone wants to be happy, though no one is quite sure what happiness means, let alone how to get it. In recent years, both academics and policymakers have taken up the pursuit of happiness. Philosophers, economists, and psychologists have argued and measured, and (some) Prime Ministers and Presidents have endorsed happiness as a guide to policy. Yet many are unconvinced that the happiness agenda is either serious or appropriate. The lecture will review the arguments and will present some of the recent empirical evidence on how happiness varies with the day of the week, with money, with age, and with parenthood. While there is much to be learned from measuring happiness, there are also many pitfalls-- including the difficulty that people have answering happiness questions--that stand in the way of the routine use of happiness in policymaking. The lecture is open to the public. For information call 22894305.
Publisher/Managing Editor Masis der Parthogh masis@financialmirror.com Greek Section Editor Angela Komodromou angelak@financialmirror.com Editorial submissions: info@financialmirror.com Advertising inquiries: marketing@financialmirror.com Subscriptions: http://www.financialmirror.com/signup/index.html
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FinancialMirror.com
September 5 - 11, 2012
COMMENT | 7
Europe's Necessary Union
The consequences of Europe's debt crisis are all too present throughout much of the European Union, as distressed economies attempt to stabilize and grow at the same time. Notwithstanding the important decisions taken over the last couple of years, the reality is that we need to do more to tackle the challenges facing the eurozone. Reform and consolidation measures are being implemented across the EU. Joint financial backstops have been put in place. And the European Central Bank has consistently shown that it will stand by the euro. Yet experts and partners often underestimate our determination. All of the steps taken so far have resulted in more European integration, not less. It is true that sometimes decision-making in our democratic system takes time. But do not misjudge us: the negotiations are about the arrangements, not about the final outcome. There is sufficient political will in the EU to do whatever is necessary to protect the euro, because the future of the single currency will determine that of European integration. The additional measures that Europe needs must be firmly rooted in a commitment to deeper integration. High levels of sovereign debt, together with the behavior of parts of the financial sector, have amplified the crisis in the eurozone and raised important issues of confidence that now require a systemic answer. That is why we must complete the unfinished business of economic and monetary union � and why the European Commission has long argued for the creation of a banking union as an indispensable step toward that goal. The Commission's upcoming proposals are part of a broader package leading to economic, fiscal, and political union that will redefine the boundaries of European integration. The crisis has starkly revealed the insufficiencies of existing banking supervision. We must go beyond cooperation and establish an EU-wide supervisory authority, particularly in the eurozone. The link between sovereign debt and bank debt has to be broken once and for all. We must end the vicious circle whereby the use of taxpayers' funds � more than 4.5 trillion euros ($5.7 trillion) so far � to rescue banks weakens governments' budgets, while increasingly risk-averse banks stop lending to businesses that need funds, undermining the economy further. Europe can stop this negative dynamic now with bold action. A single rulebook for financial services is being put in place for the single market. Building on this, a single European bankinginto the framework. The ECB's supervisory role will be fully separated from its monetary-policy responsibilities. In parallel, the European Banking Authority will continue to perform its existing tasks, namely developing the single rulebook for the entire single market and ensuring convergent supervisory practice throughout the EU. Broad coverage: All banks in the eurozone will be covered by the new European supervisory system. And we will need to bridge the gap between eurozone members and EU members that remain outside the monetary union, some of which may want to participate in the new supervisory mechanisms. The road that we have decided to follow will allow for swift action. The Single Banking Supervisory Mechanism does not require a treaty change and should be in place by January 2013. Common and more integrated supervision is the first step towards a banking union. Next, the Commission will build on our current proposals for deposit-guarantee schemes and bank resolution mechanisms to move toward a single resolution fund and a single resolution authority. Once these proposals are implemented, the banking union will be complete. Establishing a banking union by 2013 will not give Europe a magic wand with which to wave away the economic crisis overnight; but it is a major and crucial step to restoring the confidence of Europe's citizens, international partners, and investors. It will ensure financial stability, increase transparency, make the banking sector accountable, and protect taxpayers' money. Moreover, it is the start of something much bigger. Once again, I would like to stress that the eurozone is drawing lessons from the past and defining a way forward, not backwards, in terms of integration. That is good news not only for the euro, but also for the global economy.
� Project Syndicate, 2012. www.project-syndicate.org
By JOS� MANUEL BARROSO
President of the European Commission
supervision authority would open the way to direct recapitalization of banks through the European Stability Mechanism, as well as to common deposit insurance and a single resolution framework. On September 12, the Commission will present its proposals for a Single Banking Supervisory Mechanism based on three key principles: Single supervision: Within the eurozone, coordination between national supervisory bodies is no longer enough. Risks that emerge in one country can affect the entire currency area. Common banking supervision is needed for strengthening confidence among countries using common financial backstops. Credibility: The eurozone's new banking-supervision mechanism will have the ECB at its heart. The choice of tasks to be entrusted to the ECB will ensure rigorous, high-quality, and equal prudential supervision of eurozone banks, thereby contributing decisively to maintaining confidence between the banks � and thus increasing financial stability throughout the eurozone. Close cooperation with national supervisors will be built
LETTER TO THE EDITOR
Public vs. private sector: where's the evidence?
I find your Editorial ("Forget conspiracies, let the Troika do its job" August 1-7, 2012) somewhat partisan and superficial. It seems to have been written by a businessman rather than a newspaperman. It could give the impression that the objective was to reduce the salaries of the public sector in order to be able to reduce the salaries of private employees. How would a reduction of salaries of public employees translate to some gain for private employees, an argument often used to turn the private employees against those in the public sector. You also mention the underproductive civil service compared to the overworked private sector. Are you talking about employees in the private sector, or entrepreneurs because I am not sure that this is a case when comparing employees from the two sectors. You have to compare like with like. Where is your evidence? The `productive' private sector has to its `credit' the Stock Exchange scandal, and the recent banking problems. Admittedly there also seems to have been a supervision and regulation failure with respect to the behaviour of the public sector. So where were the politicians when this was happening? The politicians also have at least some responsibility for the growth of the civil service from under 30,000 in 1980 to 56,000 now. Could you imagine the situation, if there were 36,000 civil servants instead? As to the tourist trade many of its problems seem to come from the social background of many of the small entrepreneurs and their lack of imagination to say the least. Where was the media in all this mess? I believe generally they are part of the problem particularly the broadcast media You also totally ignore all the demand side factors, the world recession with its impact on tourism, services generally and especially on the real estate market. Who was responsible for the real estate bubble? The situation behind the home ownership documents to my way of thinking arose from the preference given to banks and developers against consumers. To protect the private sector banks and developers a complex system was created which contributed to the delays in producing documentation. The Editorial was disappointing. I don't have too much of an axe to grind as I am a retired `official' and an economist. All of us have to contribute to reversing the current adverse developments. But, the quality of both the politicians in general and the media as a whole is a let down for me. Sometimes you get the impression they are in the same bed. For example the media failed to pick up the earnings increases (salaries, benefits etc) the politicians and state officials, (e.g President, Representatives, Attorney General), granted themselves and their reluctance to cut them in line with the cuts of the public employees etc. Regards, George Kamperis (MSc Econ)
Ed's Note: Public sector workers are rewarded better than those in the private sector according to numerous studies and reports (Labour Force Survey, etc.). Reducing civil servants' wages would make a government job less desirable and allow young people to seek employment in the private sector. Perhaps cutting the government workforce to 36,000 and increasing the work-hours (as in the private sector) might even make it more productive. Finally, the media has been revealing a lot of scandals, but these have been limited to the print media and newspapers considered as "opposition" titles.
September 5 - 11, 2012
FinancialMirror.com
8 | C
Mitt Romney's Fair Share
Mitt Romney's income taxes have become a major issue in the American presidential campaign. Is this just petty politics, or does it really matter? In fact, it does matter � and not just for Americans. A major theme of the underlying political debate in the United States is the role of the state and the need for collective action. The private sector, while central in a modern economy, cannot ensure its success alone. For example, the financial crisis that began in 2008 demonstrated the need for adequate regulation. Moreover, beyond effective regulation (including ensuring a level playing field for competition), modern economies are founded on technological innovation, which in turn presupposes basic research funded by government. This is an example of a public good � things from which we all benefit, but that would be undersupplied (or not supplied at all) were we to rely on the private sector. Conservative politicians in the US underestimate the importance of publicly provided education, technology, and infrastructure. Economies in which government provides these public goods perform far better than those in which it does not. But public goods must be paid for, and it is imperative that everyone pays their fair share. While there may be disagreement about what that entails, those at the top of the income distribution who pay 15% of their reported income (money accruing in tax shelters in the Cayman Islands and other tax havens may not be reported to US authorities) clearly are not paying their fair share. There is an old adage that a fish rots from the head. If presidents and those around them do not pay their fair share of taxes, how can we expect that anyone else will? And if no one does, how can we expect to finance the public goods that we need? Democracies rely on a spirit of trust and cooperation in paying taxes. If every individual devoted as much energy and resources as the rich do to avoiding their fair share of taxes, the tax system either would collapse, or would have to be replaced by a far more intrusive and coercive scheme. Both alternatives are unacceptable. More broadly, a market economy could not work if every contract had to be enforced through legal action. But trust and cooperation can survive only if there is a belief that the system is fair. Recent research has shown that a belief that the economic system is unfair undermines both cooperation and effort. Yet, increasingly, Americans are coming to believe that their economic system is unfair; and the tax system is emblematic of that sense of injustice. The billionaire investor Warren Buffett argues that he should pay only the taxes that he must, but that there is something fundamentally wrong with a system that taxes his income at a lower rate than his secretary is required to pay. He is right. Romney holds). It is perhaps no accident that rent-seeking and inequality have increased as top tax rates have fallen, regulations have been eviscerated, and enforcement of existing rules has been weakened: the opportunity and returns from rent-seeking have increased. Today, a deficiency of aggregate demand afflicts almost all advanced countries, leading to high unemployment, lower wages, greater inequality, and � coming full, vicious circle � constrained consumption. There is now a growing recognition of the link between inequality and economic instability and weakness. There is another vicious circle: Economic inequality translates into political inequality, which in turn reinforces the former, including through a tax system that allows people like Romney � who insists that he has been subject to an income-tax rate of "at least 13%" for the last ten years � not to pay their fair share. The resulting economic inequality � a result of politics as much as market forces � contributes to today's overall economic weakness. Romney may not be a tax evader; only a thorough investigation by the US Internal Revenue Service could reach that conclusion. But, given that the top US marginal income-tax rate is 35%, he certainly is a tax avoider on a grand scale. And, of course, the problem is not just Romney; writ large, his level of tax avoidance makes it difficult to finance the public goods without which a modern economy cannot flourish. But, even more important, tax avoidance on Romney's scale undermines belief in the system's fundamental fairness, and thus weakens the bonds that hold a society together.
� Project Syndicate, 2012. www.project-syndicate.org
By JOSEPH E. STIGLITZ
A Nobel laureate in Economics, is Professor of Economics at Columbia University. His latest book is The Price of Inequality: How Today's Divided Society Endangers our Future
might be forgiven were he to take a similar position. Indeed, it might be a Nixon-in-China moment: a wealthy politician at the pinnacle of power advocating higher taxes for the rich could change the course of history. But Romney has not chosen to do so. He evidently does not recognize that a system that taxes speculation at a lower rate than hard work distorts the economy. Indeed, much of the money that accrues to those at the top is what economists call rents, which arise not from increasing the size of the economic pie, but from grabbing a larger slice of the existing pie. Those at the top include a disproportionate number of monopolists who increase their income by restricting production and engaging in anti-competitive practices; CEOs who exploit deficiencies in corporate-governance laws to grab a larger share of corporate revenues for themselves (leaving less for workers); and bankers who have engaged in predatory lending and abusive credit-card practices (often targeting poor and middle-class house-
Back-to-School Letter to the US Congress
What if members of the United States Congress, now returning from their summer recess, were to receive a "back to school" letter from concerned citizens? Here is what a first draft might look like. Dear Member of Congress: Welcome back to the Capitol. We hope that you had a good summer break, and that you return to Washington not just rested, but also energized to take on our country's mounting economic challenges. The news has been mixed during your absence. We have seen some improvement in economic data, but not enough to suggest that we are any closer to overcoming decisively this painful period of low growth and high unemployment. And, with a selfinflicted fiscal cliff looming � one that could send our country back into recession, pulling the rest of the world with us � businesses are reluctant to hire and invest in new capital goods. Fortunately, the Federal Reserve has signaled its intention to remain active, but its policy tools are poorly suited to the challenges that we face. Meanwhile, global difficulties remain substantial. We continue to face strong headwinds originating from the deepening European debt crisis, as well as geopolitical tensions in the Middle East. China, once the world's unstoppable growth engine, is slowing. And, despite all the happy talk, multilateral policy coordination is essentially non-existent. All of this calls for courageous and visionary economic leadership; otherwise, our problems will fester and grow, and the solutions will become even more complex. Already, too many of our economy's difficulties, including worrisome trends in youth joblessness and long-term unemployment, risk becoming structurally embedded. No doubt you have also noticed that, with less than ten weeks to go until the November presidential election, our country is in the grip of an increasingly ugly political campaign. So, with this combination of bad economics and bad politics, we look to you for direction and leadership. It is that simple, and that important. We need you to overcome a prolonged period of congressional paralysis and polarization in order to address the country's malaise. We need you to pivot in your responses from the tactical to the strategic, from the cyclical to the secular, from the partial to the comprehensive, and from sequential to simultaneous reforms. If this call to national duty is not enough, we would remind you of your own self-interest. According to the latest NBC News/Wall Street Journal poll, your support among us, the electorate, stands at just 12%. We concede that there is no magic wand to overcome our country's problems. After all, for too many years leading up to the global financial crisis, America "bought" and "borrowed" its growth by leveraging balance sheets, rather than "earning" it through increased competitiveness. The result was massive misLabor-market reform: Persistently high unemployment and large-scale withdrawal from the labor force are a constant reminder of a malfunctioning labor market that needs support through better training and retooling. Reform must also address the related challenges of a lagging education system and an insufficient social safety net. Housing and housing finance: At the root of the global financial crisis, the troubled US housing market continues to act as a millstone around the economy's neck. The longer the problems persist, the greater the pressure on consumer and business sentiment, and the harder it is for the unemployed to find and relocate to new job opportunities. Clogged credit pipes: With banks' balance sheets contracting, too many small and medium-size companies are unable to mobilize credit for investment and growth. Recognizing that it will take years until banks are properly stabilized, America needs to build new conduits for credit. Infrastructure: Those of you who have traveled abroad know that our infrastructure is desperately lagging that of a growing number of countries. This makes it even harder for our companies to compete and prosper. Global policy coordination: America's traditional leadership role has evaporated in recent years as our problems have made us more insular and inward-looking. This would not be a major problem if the resulting vacuum had been filled. But that has not happened. On the contrary, the G-7 has lost relevance, the International Monetary Fund is hampered by its representation and legitimacy deficits, and the G-20 is still finding its feet. Engineering such an agenda is not an overwhelming challenge. But that will provide little comfort if you, our elected representatives, do not collaborate effectively. The choice Congress faces this term is simple: either address head on America's challenges, or risk being remembered as the body whose dithering condemned future generations to being worse off than their parents. Yours sincerely, Concerned citizens
� Project Syndicate, 2012. www.project-syndicate.org
MOHAMED A. EL-ERIAN
CEO and co-CIO of PIMCO, and author of When Markets Collide
allocation of human resources, insufficient infrastructure investment, over-reliance on credit entitlements, and, of course, unsustainable debt. To make matters worse, this occurred at a time when systemically important emerging economies hit their "developmental breakout phase," powered by trade and other aspects of globalization. We do not expect you to solve America's problems overnight. Instead, we look to you to embark on an appropriate and sustainable policy path. So, as you unpack your bags and renew old friendships and rivalries, please keep the following in mind. Changing course requires that you, together with the president, have a much more open and consistent economic dialogue with us, the general public, about the challenges that we face. It also requires that you and the president converge on a multiprong, multi-year policy initiative that, at a minimum, makes simultaneous advances in six critical areas: Fiscal reform: We desperately need you to eliminate the looming fiscal cliff in the context of medium-term reforms of both the tax system and entitlements. This would also allow for greater fiscal stimulus at a time when other components of aggregate demand are slowing.
FinancialMirror.com
September 5 - 11, 2012
COMMENT | 9
Can Draghi Be Believed?
Mario Draghi, the president of the European Central Bank, has repeatedly claimed that the ECB will do everything necessary to save the euro. Nothing has been formally agreed yet, but the ECB is expected to announce a new government bond-buying program following next week's meeting of its Governing Council. Will it work? To have a significant impact on Italian and Spanish borrowing costs, the latest effort must be big enough to dispel the convertibility risk that underlies the extreme polarization of government bond yields across the eurozone: investors are loathe to hold Spanish and Italian debt, because they fear that both countries might be forced to leave the currency union. Unfortunately, it is highly unlikely that the ECB will do enough to persuade investors that membership is unequivocally forever, not least because Germany's Bundesbank opposes any open-ended commitment to capping borrowing costs. Spain, Italy, and the eurozone periphery face unprecedentedly high real borrowing costs, which are preventing a recovery in investment and hence economic growth. Without a return to growth, they cannot quell investors' doubts about their fiscal sustainability and their banks' solvency. The Italian and Spanish governments argue that their high borrowing costs largely reflect convertibility risks, and that the ECB should do as much as necessary to address them. But eurozone members that currently benefit from exceptionally low borrowing costs � Germany, Austria, Finland, the Netherlands, and, to a lesser extent, France � maintain that Italian and Spanish borrowing costs largely reflect these countries' failure to reform their economies and strengthen their public finances. There is merit in both positions � but much more in the Spanish and Italian argument. Opponents of open-ended ECB action argue that Italian and Spanish borrowing costs are not actually that high: interest rates have merely returned to levels seen in the run-up to the introduction of the euro, when investors distinguished properly between the countries that now share the euro. High borrowing costs are needed to focus minds and instill discipline. Were the ECB to take aggressive action to bring them down, moral hazard would result: countries would face no punishment for delaying reforms. In nominal terms, Italian and Spanish borrowing costs are indeed comparable to the levels of the late 1990's. But it is the real (inflation-adjusted) cost of capital that is crucial, and for both countries it is much higher now than it was in the runup to their adoption of the euro. Moreover, it is erroneous to compare the present with the late 1990's. Italy and Spain are at very different points in the economic cycle now than they were then. In the late 1990's, According to the Kiel Institute for the World Economy, investor flight from the government debt markets of the eurozone's struggling members to Germany has already saved the German government almost 70 billion euros ($88 billion). Other countries, by contrast, face ruinously high borrowing costs, which are simultaneously increasing the scale of their reform challenges and narrowing their political scope to address them. The longer Italian and Spanish borrowing costs remain at such elevated levels, the greater the damage to those economies, and the harder it will become to marshal the necessary political support for further reforms. The Italians and Spaniards are right: the principal reason for the size of the spread between the periphery and Germany is convertibility risk. Investors are demanding a hefty premium to insure against the chance that Italy and Spain are ultimately forced out of the eurozone � thus bringing that day closer by weakening countries' fiscal positions and raising their private-sector borrowing costs (which are set by government bond yields). With private and public consumption in both Italy and Spain set to remain depressed for years to come, economic recovery requires stronger investment and exports. But the steep fall in the value of Italian and Spanish banks' holdings of government debt, combined with mounting bad loans as a result of recessions exacerbated by punitive borrowing costs, is forcing the banks to rein in business lending further. The ECB's latest program of bond purchases will be big enough to ensure that Draghi does not lose face. But it will not be big enough to dispel convertibility risk and hence demonstrate the ECB's credibility as a lender of last resort. And it is the ECB's credibility problem, not that of member states, that is the principal reason for unsustainably high borrowing costs in Italy, Spain, and other distressed eurozone countries.
� Project Syndicate, 2012. www.project-syndicate.org
By SIMON TILFORD
Chief Economist at the Center for European Reform
both economies were growing (rapidly in the Spanish case), whereas now they face hard times and a mounting risk of deflation. And countries facing depressions and rapidly weakening inflation typically face very low borrowing costs: investors purchase government bonds for want of profitable alternatives. This is what we see in the United Kingdom and the United States, where borrowing costs remain at all-time lows, despite both countries' weak public finances and poor growth prospects. To be sure, investors must differentiate between eurozone governments, in order to ensure that risk is correctly priced. The Italian and Spanish authorities acknowledge as much. But the current spread between the yield on German sovereign debt and that of the Italian and Spanish governments far exceeds what is required to ensure that investors differentiate appropriately. The polarization of borrowing costs has politically explosive distributional effects: Germany is borrowing and refinancing its existing debt at artificially low interest rates.
Is Inflation Returning?
Inflation is now low in every industrial country, and the combination of high unemployment and slow GDP growth removes the usual sources of upward pressure on prices. Nevertheless, financial investors are increasingly worried that inflation will eventually begin to rise, owing to the large expansion of commercial bank reserves engineered by the United States Federal Reserve and the European Central Bank (ECB). Some investors, at least, remember that rising inflation typically follows monetary expansion, and they fear that this time will be no different. Investors have responded to these fears by buying gold, agricultural land, and other traditional inflation hedges. The price of gold recently reached a four-month high and is approaching $1,700 an ounce. Prices per acre of farmland in Iowa and Illinois rose more than 10% over the past year. And the recent release of the US Federal Reserve Board's minutes, which indicate support for another round of quantitative easing, caused sharp jumps in the prices of gold, silver, platinum, and other metals. But, unlike private investors, Fed officials insist that this time really will be different. They note that the enormous expansion of commercial banks' reserves has not led to a comparable increase in the supply of money and credit. While reserves increased at an annual rate of 22% over the past three years, the broad monetary aggregate (M2) that most closely tracks nominal GDP and inflation over long periods of time increased at less than 6% over the same three years. In past decades, large expansions of bank reserves caused lending surges that increased the money supply and fueled inflationary spending growth. But now commercial banks are willing to hold their excess reserves at the Fed, because the Fed now pays interest on those deposits. The ECB also pays interest on deposits, so it, too, can in principle prevent higher reserves from leading to an unwanted lending explosion. The Fed's ability to pay interest is the key to what it calls its "exit strategy" from previous quantitative easing. When the economic recovery begins to accelerate, commercial banks will want to use the large volume of reserves that the Fed has created to make loans to businesses and consumers. If credit expands too rapidly, the Fed can raise the interest rate that it pays on deposits. Sufficiently high rates will induce commercial banks to prefer the Fed's combination of liquidity, safety, and yield to expanding the quantity of private lending. That, at any rate, is the theory; no one knows how it would work in practice. How high would the Fed � or the ECB, for that matter � have to raise the interest rate on want to raise the interest rate to prevent an acceleration of inflation. But, if the unemployment rate is then still relatively high � say, above 7% � some members of the Fed's Open Market Committee may argue that the Fed's dual mandate � low unemployment as well as low inflation � implies that it is too soon to raise interest rates. There could also be strong pressure from the US Congress not to raise interest rates. Although the Fed's legal "independence" means that the White House cannot tell the Fed what to do, the Fed is fully accountable to Congress. The recent Dodd-Frank financial-reform legislation took away some of the Fed's powers, and the legislative debate surrounding the bill indicated that there could be wide support for further restrictions if Congress becomes unhappy with Fed policy. Politicians' desire to keep interest rates low in order to reduce unemployment is often in tension with the Fed's concern to act in a timely manner to maintain price stability. The large number of long-term unemployed may make the problem more difficult this time by causing the unemployment rate to remain high even when product markets are beginning to experience rising inflation. If that happens, Fed officials will face a difficult choice: tighten monetary policy to stem accelerating price growth, thereby antagonizing Congress and possibly facing restrictions that make it difficult to fight inflation in the future; or do nothing. Either choice could mean a higher future rate of inflation, just as financial markets fear. Although the ECB does not have to deal with direct legislative oversight, it is now clear that there are members of its governing board who would oppose higher interest rates, and that there is political pressure from government leaders and finance ministers to keep rates low. Rising inflation is certainly not inevitable, but, in both the US and Europe, it has become a risk to be reckoned with.
� Project Syndicate, 2012. www.project-syndicate.org
MARTIN FELDSTEIN
Professor of Economics at Harvard, was Chairman of President Ronald Reagan's Council of Economic Advisers and is a former president of the US National Bureau for Economic Research
deposits to prevent excessive growth in bank lending? What if that interest rate had to be 4% or 6% or even 8%? Would the Fed or the ECB push its deposit rate that high, or would it allow a rapid, potentially inflationary lending growth? The unusual nature of current unemployment increases the risk of future inflation still further. Nearly half of the unemployed in the US, for example, have now been out of work for six months or longer, up from the traditional median unemployment duration of just 10 weeks. The long-term unemployed will be much slower to be hired as the economy recovers than those who have been out of work for a much shorter period of time. The risk, therefore, is that product markets will tighten while there is still high measured unemployment. Inflation will begin in product markets, rather than in the labor market. Businesses will want to borrow, and banks will want to expand their lending. Under these conditions, the Fed will
FinancialMirror.com
September 5 - 11, 2012
COMPANY NEWS | 11
Cypriots drink milk, despite crisis
G Charalambides-Kristis
turnover reaches 100 mln, exports 15%
milk, with the modern production facilitries allowing it remain the leader in the areas of fresh milk sales, flavoured milk, yoghurt, fresh cream, halloumi and frozen vegetables and pastry. As regards export prospects in 2012 and 2013, the dairy company's management is confident sales will go up, especially halloumi for which there is growing demand, in new markets, as well as the traditional and ethnic export markets. To date, the company has invested some 20 mln euros in new equipment and to reinforce the infrastructure, allowing it some room for expansion into new areas. Charalambides-Kristis changed hands last December when Alexis Charalambides and the founders of the company partnered up with the Constantinos N. Shacolas Group to buy back a 90% stake from Vivartia Cyprus Ltd in one of the biggest takeovers in recent commercial history. Greek dairy giant Delta has maintained a 10% stake which will offer its expertise and knowhow in the dairy products sector.
Charalambides-Kristis Ltd., the island's leading dairy milk producer, believes that the consumer's basic dairy needs remain unaffected and sales are steady, with the company reporting a 100 mln annual turnover, 15% of which are exports. However, company executives believe that due to a tighter budget, household have cut back on cheese. The company employs 580 people and its main plant in Limassol processes some 60 mln litres of fresh cow's milk and 11 mln litres of sheep and goat
Chinese producers see red over cheap European wine
Chinese wine producers have asked the government to investigate whether winemakers in the European Union are dumping cheap wine in China
Spectus wine courses
Spectus shops in Limassol, Larnaca and Nicosia are organising a new course on "The World of Wine" conducted by George Hadjikyriacos with the opportunity to taste over 60 wines from famous regions, including champagne. The seminar is divided into six weekly presentations: Limassol: Tuesdays, 6:30-8:30/9:00p.m., September 18, 25 of September, October 2, 9, 16, 30. Larnaca: Wednesdays, 6:30-8:30/9:00p.m., September 19, 26, October, 3, 10, 17, 31. Nicosia: Thursdays, 6:30-8:30/9:00p.m., September 20, 27, October, 4, 11, 18, November 1. The participation cost is ?245. For information and registration call Limassol 25341525, Nicosia 22511521 and Larnaca 99462657. The China Alcoholic Drinks Association has asked the Ministry of Commerce to look into dumping as well as subsidies to European wine makers, the association said on its website. Wine exports from the EU to China have increased sharply in recent years, reaching 169 mln litres in 2011, compared with 35.9 mln litres in 2008, Wang Zuming, secretary of the association's wine subcommittee, was quoted as saying. "Almost all wine enterprises in China have strongly felt the impact of the attack by wine imports from the European Union, with operations, performance and market share seriously sliding," Wang said. "The Chinese wine consumption market has shown great potential. By exporting such large amounts of cheap wine, it's obvious they're trying to seize Chinese market share." Inexpensive wine imports to China are growing rapidly, says Jim Boyce, a Beijing-based wine writer who runs the blog Grapewallofchina.com. Wine from Spain made up some 5% of the Chinese bulk wine market in 2009, but that share has soared to 50% of the market now, he said. "If you look at the first quarter of 2012, Spanish wines were 9.2% of the Chinese market by volume, but 5.1% of the market by value," Boyce said. "Whether that's dumping I don't know, but a lot of people are probably looking at that and thinking so." Calls on Tuesday to the drinks association office went unanswered, and there was no response to a query faxed to the Commerce Ministry asking if it planned an investigation. China has become the world's fifth-largest consumer of wine, according to an annual industry study published in February by VINEXPO/International Wine and Spirit Research. Increasing wine imports are putting pressure on domestic producers. Dynasty Fine Wines Group Ltd reported that 2011 revenue sank 10.5% from 2010. China Great Wall Wine Co saw revenue decline 2.1% last year, according to the Global Times newspaper. Domestic brands frequently seek foreign investment and expertise, and foreign winemakers - mostly French - are investing in several new vineyards to produce high-end still and sparkling wine for wealthy customers in China. Wealthy Chinese consumers show an overwhelming preference for expensive French wine, and Chinese companies and well-to-do individuals are buying multimillion-dollar wine chateaux in France's Bordeaux region.
Pernod Ricard chairman dies
Sunrise Hotels gets new website
The new website for the Sunrise Hotels Group, www.sunrise.com.cy, recently went `live', offering ease of use, contemporary design, and plenty of photographs through which visitors may discover information about the services offered by the Sunrise Pearl Hotel & Spa, Sunrise Beach Hotel, Brilliant Hotel Apartments and Sandra Hotel Apartments. The site also features an easy to use online reservation system. The development of the new website, designed and developed by UiBS (http://www.uibs.net), is part of a wider communication strategy adopted by the Sunrise Group of Hotels, which aims to provide immediate information and services to the wider public, as well as its associates. Pernod Ricard, the world's No. 2 wine and spirits group, said Patrick Ricard, its chairman and son of the company founder, has died Friday at the age of 67. Ricard was the son of Paul Ricard, who first marketed pastis, the anis-flavoured liqueur, in 1932, and founded the eponymous company which merged in 1975 with its competitor Pernod to create Pernod Ricard. Patrick Ricard, who joined the company in 1967, had been chairman of the board since 1978 and was also its chief executive officer until 2008, spurring the group's expansion into international markets. Pernod Ricard, which generated sales of 7.6 bln euros in 2011, owns the Ballantine's, Mumm, and Chivas brands among others and employs 18,000 staff worldwide. It also produces Absolut Vodka, Martell cognac, Perrier-Jouet champagne and Glenlivet whisky.
September 5 - 11, 2012
FinancialMirror.com
12 | WORLD
Germany's triangulated opposition
ANALYSIS
Bill Clinton may have been the first to use a strategy of "triangulation" to win an election, co-opting policies of his Republican rivals to win a second term as president in 1996. But it is Germany's Angela Merkel who seems to have turned the tactic, coined by controversial Clinton campaign guru Dick Morris, into an art form. With a year to go until Germans go to the polls, the country's leftist opposition parties are searching desperately for issues to throw at the conservative chancellor and finding the cupboard alarmingly bare. It has been a great few years for opposition parties elsewhere in Europe. With the euro zone debt crisis raging, incumbents have been booted out of office in France, Italy, Spain and a host of smaller countries, including bailout victims Greece, Ireland and Portugal. In the Netherlands, the big winner in an election set for September 12 is likely to be a far-left party that until recently was seen as a bit player in Dutch politics. Yet Germany's Social Democrats (SPD), who will celebrate their 150th anniversary next year, and their left-leaning allies the Greens, have watched Merkel peck away at their programmes, turning their most potent positions - on nuclear power, the environment, education, childcare and wages - into her own. On the euro crisis, the theme that seems sure to overshadow all others in a German vote set for September 2013, Merkel has walked a tightrope, appeasing her bailout-averse domestic audience with tough rhetoric while keeping just enough money flowing to Europe's battered periphery to ensure the euro train does not go off the rails on her watch. The SPD meanwhile has tied itself in knots as it searches for a euro policy that is at once popular with voters and different from that of Merkel. After coming out strongly for joint euro zone bond issuance early on in the crisis, the SPD reversed course last spring after realising that three in four Germans opposed the idea. This summer it recalibrated again, saying a more limited form of debt mutualisation was advisable but only when tied to strict fiscal conditionality - a position so close to Merkel's as to be indistinguishable to most Germans. Lately it has taken to attacking the chancellor for not speaking up more forcefully against the European Central Bank's plans to buy the bonds of struggling euro members - not exactly a vote winner, even in Germany. WAITING GAME The SPD kicked off an internal debate on its election platform early last year. In mid-September it will hold a the state of Lower Saxony to pick a challenger to Merkel. The hope is that an SPD-Greens victory in the central German region will give the left vital momentum, showing voters that victory is also achievable at the national level. But even if it comes out on top, finding the right candidate will be tough. The odds-on favourite is Frank-Walter Steinmeier, the respected but colourless former foreign minister who went up against Merkel in 2009, only to deliver the worst result for the SPD in the post-war era - a meagre 23%. He is seen as the least bad option among the SPD's leadership "troika". Party chairman Sigmar Gabriel is a fighter but unpopular and undisciplined. In an interview last week he all but took himself out of the race, saying he planned to cut back on his working hours to spend more time with his family. Former finance minister Peer Steinbrueck, the third option, may be the one who wants it most. But he is regarded with suspicion by the party's influential left-wing and the momentum behind his candidacy has faded since he made clear late last year that he wants to be the SPD's frontman. GREAT CANDIDATE "If the SPD could combine the positives of each of them - Steinmeier's seriousness, Steinbrueck's financial acumen and Gabriel's campaigning skills - they'd have a great candidate," said Peter Loesche, emeritus professor at Goettingen University. "But more than anything they need a strategy. Waiting until the euro falls apart or the economy collapses doesn't cut it." The environmentalist Greens, who shot to record highs of over 20% in national polls early last year only to fade after Merkel herself jumped on the anti-nuclear bandwagon following Japan's Fukushima nuclear disaster, are also engaged in a painfully public dance over who will lead the party into the vote. Once celebrated for their youthful vigour and counter-culture cred, the Greens are now run by 50-somethings in suits, and the upstart Pirate party is siphoning away young supporters. Meanwhile, Merkel and her aides are busy triangulating, working quietly on their own plans to neutralise any and all fields of attack.
"Zukunftskongress", or conference on the future, to debate the policies it intends to take into the campaign. But high-ranking members of the party concede in private that little of substance will emerge. Instead the party has decided to play for time in the hope that the euro crisis, domestic economy and political tide turn against Merkel. "It makes sense to wait this out," said one senior SPD official. "A weakening economy would make the campaign much easier for us. And we could see the euro crisis deepening, forcing more rescues and making it very difficult for Merkel to keep people in her own ranks on board." The party also plans to wait until after a January election in
EU worried over Hungary, Romania institutions
A top European Union official praised court rulings in Hungary and Romania which rejected widely criticised attempts to entrench their ruling parties in power, but said she remained worried about both countries' institutions. Viviane Reding, the European Commission's vice president in charge of justice, told Le Monde newspaper that Hungary was one of the most worrying cases and cited the government's bid to lower the retirement age for judges - thrown out in July as unconstitutional. Hungary's top court, ruling against the legislation, said it would be a threat to the independence of the judiciary, echoing EU criticism. The conservative ruling party Fidesz also used its two-thirds majority in parliament to pass a new constitution, which critics saw as cementing its grip on power by taking budget issues and other areas of law out of the top court's jurisdiction. "That state remains one of those which worry me the most," Reding was quoted as saying in the interview. "The courts there must be independent." "All the problems haven't been resolved, but the worst has been avoided thanks, there as well, to a coalition of European institutions jointly voicing their worry," she said. Turning to another ex-communist European state, Romania, which recently experienced a political crisis, Reding said the worst had been avoided there too. Prime Minister Victor Ponta's leftist alliance tried to dismiss his rival, right-wing President Traian Basescu, suspending him in July and holding a referendum on whether to impeach him. The Constitutional Court ruled the referendum invalid because turnout fell short of the 50% required. Parliament accepted the decision and agreed to reinstate Basescu. During the tussle, the government threatened to remove Constitutional Court judges or limit their powers, but backed down under EU pressure. Analysts said the battle was part of a broader struggle for power and control of the judicial system. Both the European Commission and the United States criticised the methods used by the government against the president, saying they were a threat to democracy and the rule of law. Reding said she would not be surprised if Romania remained excluded from the bloc's passport-free Schengen zone for now.
Russia if retaliate if Britain blacklists officials
G
Allegations of links to death of anti-corruption lawyer Sergei Magnitsky
Russian state through fraudulent tax returns. The Kremlin's own human rights council said Magnitsky was probably beaten to death. Britain's Sunday Times reported that Home Secretary Theresa May had sent a list of 60 Russians to the British embassy in Moscow and that they could be banned from entering Britain. A diplomatic dispute over the Magnitsky case would further strain relations between Britain and Russia. The countries have been at odds over security, diplomatic and human rights issues for years, particularly since the 2006 murder in London of Kremlin critic Alexander Litvinenko, a former Russian spy who died from poisoning with radioactive polonium-210. In December 2010, Britain expelled a diplomat from the Russian embassy in London. It said this was in response to "clear evidence" of activities by the Russian intelligence services against British interests. Russia responded days later by expelling a diplomat from the British embassy in Moscow. The Magnitsky case has also strained ties between Russia and the United States. A U.S. Senate panel in June approved a bill, sharply criticised by Moscow, that would require the United States to deny visas and freeze the assets of Russians linked to Magnitsky's death, along with other human rights abusers in Russia or anywhere in the world.
Russia said on Monday it would retaliate if Britain confirmed a media report that it could ban dozens of Russian officials from entering the country for their alleged roles in the 2009 prison death of lawyer Sergei Magnitsky. Russia's Foreign Ministry said it had asked Britain whether it had blacklisted 60 people including judges, intelligence officers and prosecutors, as a newspaper reported. The ministry did not say what a Russian diplomatic response could entail. Magnitsky, a 37-year-old lawyer for an equity fund, died about a year after he was jailed on charges of tax evasion and fraud. Former colleagues say the charges were fabricated by police investigators he had accused of stealing $230 mln from the
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FinancialMirror.com
September 5 - 11, 2012
WORLD MARKETS | 21
Growth vs. Demand in currencies: EUR vs. USD � Main Key drivers
Andrey Dashin is the Chairman of the Supervisory Board and one of the founders of the Alpari Family of Companies (Alpari), one of the world's leading providers of online forex trading services. As one of the most prominent businessmen in Russia and a savant of the financial world, Andrey Dashin looks at growth vs. demand in currencies and provides his view about global economic activity
In the global economy, one of the most vital data values when determining the growth and demand of a country's currency are interest rates. In the US, the body that sets interest rate movements is the Federal Reserve, commonly known as the "Fed". In setting interest rate movements, it acts in a way which will help stimulate the US economy. When interest rates are high, the cost of borrowing climbs while economic activity slows down, keeping inflation levels in place. Another result of high interest rates is that the country becomes an appealing ground for foreign investments and demand for the country's currency rises. On the other hand, low interest rates means that corporations and individuals can borrow at a much cheaper rate, which allows them to spend more and in turn increases economic activity. However, this comes at a cost seeing as low interest rates remove the appeal for foreign investors to invest their funds in the country, lowering demand for its currency. Andrey Dashin says: "The Fed's decisions affect not only the US economy, but also other currencies and economies worldwide seeing as the dollar is the world's reserve currency. As the financial crisis spread across the world in 2007, the Fed began to lower interest rates and decided to keep them at record low levels in order to boost growth and protect the US economy from plunging deeper into recession. Low interest rates brought about a weaker dollar which meant cheaper US exports and thus increased demand from abroad. Moreover, all major commodities are priced in US dollars, which means that manufacturing costs for Europeans were no longer as expensive, so commodities became more affordable in Europe". In contrast to the Fed, the European Central Bank's (ECB) actions regarding interest rates were not as fast. As the situation with the European debt crisis worsened, the ECB cut interest rates to record lows in mid-2011 to 0.75% in an attempt to support the weaker European economies. The more fragile of the euro zone countries and Europe as a whole could benefit from a weaker euro as exports may become cheaper and borrowing costs may become lower. However, it is important to mention that the stronger European economies may suffer from high inflation if the euro is devalued. A far more viable policy would be for the ECB to take new easing measures, which may cause higher inflation in the wealthier northern European countries such as Germany, but for fragile countries in the weaker ones however they could, but this did not in any way mean that the weaker economies could remain at ease. Taking part in the euro eliminated each country's ability to manage their monetary policy in times of economic stress. In order to stimulate their economic growth they must modify their fiscal policy. Only in this way will they achieve fiscal integration again and, more essentially, an effort for speedy recovery may provide a motive to the stronger European economies to help as it will signal that all are striving for a stronger Europe and the weaker economies can one day repay their obligations". Ever since Greece's economic woes led the country to request a bailout from the EFSF in 2010, each time a European nation applies to the EFSF, the euro is driven lower by a negative reaction from investors. As seen with not only Greece but also with Portugal, Ireland, Spain and Cyprus, it is inevitable that when a country requests a bailout, investors are reminded of the severity of the crisis and how it has weakened economies. A major concern for Europe in the past year has been the constant fear in the market that Greece may have to exit the euro, subsequently causing even more problems for the Greek economy and Europe as a whole. The euro may improve in strength and demand when Europe proves that it can tackle the debt crisis adequately, restore its credibility, stabilize its financial sector and experience satisfactory economic growth once more. In contrast, the strength of, and demand for, the US dollar could be determined by how quickly the housing sector can recover, the election results in November and whether the US will be able to avoid recession. Andrey Dashin concludes: "The euro's predicted performance against the US dollar in the next 12 months is negative seeing as the euro needs to devaluate against the dollar if the euro zone is to return to growth and restore its credibility. A formal request for a bailout from Spain could force the euro to move even closer to parity with the US dollar and markets may shift their focus to Italy and the possibility that they may request a bailout next. Having said this however, the current unstable market environment makes it difficult to predict anything with certainty, especially for the next 12 months".
Note: The content in this article comprises personal opinions and ideas and should not be taken or misunderstood as investment advice.
south such as Italy and Spain it will mean that economic activity may be boosted. If the gap between northern and southern European countries is slowly sealed, this will mean that a country such as Spain may be able to compete against a country like Germany or Finland.
Andrey Dashin states: "As a number of European countries began to be excluded from the credit markets they also began to rely very heavily on the stronger European economies for their funding needs. In a collaborative effort and in true European spirit, the stronger economies helped the
September 5 - 11, 2012
FinancialMirror.com
24 | MARKETS
Gold hits 5-month high
Gold edged higher on Tuesday to the highest level in more than five months as lacklustre manufacturing data from around the globe fanned speculation of imminent easing measures from central banks. Gold and silver rode the sentiment to multi-month highs as investors piled into the precious metals, aiming to hedge against potential inflation risks. The most-active U.S. silver futures contract jumped nearly 3% earlier in the day to a 4-1/2 month high of $32.38 per ounce, before easing slightly to $32.27. Silver, both a precious and an industrial metal, has risen nearly 10% over the past two weeks, outstripping a 4% gain in gold, despite recent data suggesting gloomy global growth outlook. Silver is also notorious for price volatility, given the relatively small size of the market and limited liquidity. Spot gold rose to $1,696.91 per ounce, the highest since mid-March, then eased slightly to $1,695.46. Asia's physical market saw some scrap selling as prices approached the key $1,700 level. Holdings of gold-backed exchange-traded funds rose to a record high of 71.729 mln ounces by the end of last week. August recorded an inflow of 1.8 mln ounces, representing a near 3% rise - the biggest monthly gain since November.
FOREX COMMENTARY TECHNICAL ANALYSIS
The euro pushed higher against the dollar on Tuesday, nearing a two-month high hit last week, supported by hopes the European Central Bank will soon unveil details of a plan to tackle the region's debt crisis. currency The rose 0.2 percent to $1.2618, hovering close to a high of $1.26378 seen last Friday on trading platform EBS, its strongest level since early July. Traders said the paring back of bearish bets against the probably euro helped bolster the single currency, and there was also talk of euro buying by Asian players as well as euro buying against the yen by Japanese players. Helping support the euro were expectations that the ECB will announce, after its policy meeting on Thursday, details of a long awaited debt-buying scheme to help ease funding pressures for stressed states. Those hopes were boosted on Monday by reports ECB President Mario Draghi said purchases of sovereign bonds of up to three years maturity by the ECB did not constitute state aid. With expectations running high ahead of Thursday's ECB meeting, analysts said the euro could sag if there is any disappointment. The euro's downside against the dollar, however, could be limited in the near term, with the greenback likely to be weighed down by market speculation that the U.S. Federal Reserve might decide to launch another bond buying program, or quantitative easing, as early as this month. The Australian dollar edged higher on position squaring after Australia's central bank kept interest rates unchanged at 3.5 percent as widely expected. The Australian dollar rose 0.4 percent to $1.0283, pulling up from a low of $1.0224 hit earlier on Tuesday, its lowest level in nearly six weeks. With the Reserve Bank of Australia likely to lower interest rates once more by the end of the year and some commodity prices looking vulnerable to a slowdown in China, the Australian dollar may head lower in the next few months, said Daniel Martin, Asia Economist for Capital Economics in Singapore. Falls in prices for commodities such as iron ore and concerns about the outlook for the global economy have stirred worries about the longevity of Australia's mining investment boom and weighed on the Australian dollar in recent weeks.
Disclaimer: The commentary appearing on this page is for indication purposes only and Eurivex does not take any responsibility for investment action taken. Nothing in this report should be considered to constitute investment advice. It is not intended, and should not be considered, as an offer, invitation, solicitation or recommendation to buy or sell any of the financial instruments described herein. Trading on leverage is very risky and may lead to losses.
Brent climbs above $116
Brent rose for a fourth day in Asia on Tuesday, reaching more than $116 per barrel on persistent hopes for stimulus measures from central banks in the U.S. and Europe, with key policy meetings this week and next. Prices were also underpinned by expectations that weak data from China, the world's second-biggest oil consumer, would prompt Beijing to ease policy further, while festering tension between Iran and Israel added support. The ECB meets on Thursday and U.S. Federal Reserve policymakers will begin a two-day gathering on September 12. China's vast manufacturing sector contracted in August, strengthening the view that the slowdown in the economy may extend into the third quarter. Inflation and industrial data are due on Sunday, while trade numbers will be released on Monday, which may give a clearer picture of the state of the Chinese economy. Complicating matters, the country's political leadership is set to change hands in a once-in-a-decade transition later this year. In the short-term, however, investors are awaiting the outcome of the ECB meeting. The bank is expected to give some details on a bond-buying scheme to help its crisis-ridden members. Strengthening those expectations, ECB Chairman Mario Draghi told European lawmakers that the bank's purchases of short-term debt would not breach EU rules. There are also hopes that the Fed, which meets next week, will provide further hints on whether it is leaning toward a third round of quantitative easing, or QE3, as the minutes of its last meeting suggested. Traders however are not betting on a QE3 announcement on September 13. A poll of 61 economists last week gave a 45% chance of an announcement of QE3 after the September meeting.
Australia holds rates at 3.5%
Australia's central bank on Tuesday kept its main cash rate steady at 3.5%, a widely expected decision as a resilient domestic economy gives it time to assess the impact of past easings.
FinancialMirror.com
September 5 - 11, 2012
MARKETS | 25
Sinking Metals And Sturdy Currencies
Marcuard's Market update by GaveKal Research
They say one way to cheer up is to look at those who are worse off. For many investors, this could come easy by comparing their portfolios against returns in industrial metals. Iron ore prices are "sinking faster than the Titantic" causing the plug to be pulled on major mining projects in Australia. Yet with the exception of the South African rand, which has taken a pounding, most commodity currencies have held up. Brazil actually intervened to weaken the BRL in past weeks, the AUD fell hard yesterday but remains sturdily above parity with the USD while the New Zealand finance minister has rejected a calculated depreciation of the NZD. The Canadian dollar is about 17% overvalued against the USD and 8% overvalued against the euro. Clearly in a world of virtual zero interest rates and flagging global growth, it is hard to dislodge investors from the higher-yielding "commodity currencies." What we have seen year to date, however, is an underperformance of the AUD against the CAD and NZD among the developed-market commodity-rich countries. This is no surprise as Australia is tied more to hard commodities, while New Zealand, a major agricultural exporter, to the softs. Canada meanwhile has a diversified commodity mix that includes natural gas and moves into the later stages that growth will slow. Its demand for energy and food is less tied to the industrialization and urbanization process and more to rising incomes, so that growth should remain more stable over time. In relative terms that means demand growth for energy and food will be stronger than demand growth for metals in coming decades. If sustained, this trend favors the NZD and CAD over the AUD. While Australia's currency offers higher yields than the CAD (and slightly more than the NZD), it remains one of the world's most overvalued units in purchasing power parity terms-- indeed on this metric the AUD is substantially more expensive than the already overvalued CAD. As for the Brazilian real and South African rand; these are emerging market currencies which tend to be more volatile and have different performance drivers. Brazil has a more diverse commodity base, being rich in agriculture and petroleum as well as metals. South Africa is more reliant on mining, but despite the global metals boom of the last decade, the sector has stagnated due to bad governance. For these reasons, the ZAR, like the AUD, has a less compelling structural outlook.
other petroleum products. The question is whether this relative outperformance is temporary--after all, AUD yields are still superior. In our view, the non metal-based currencies will stay a better bet due to the changing nature of Chinese commodity demand. China's demand for metals grew rapidly when it was at the early stages of industrialization and urbanization, and as it
Look To Asia For Value
Marcuard's Market update by GaveKal Research
The outperformance of US equity markets has certainly been impressive. Since the start of 2010 the S&P 500 is up +26%, beating the MSCI AC World by 16 percentage points. This outperformance has been driven by both US corporate strength and the weakening EMU and Asian economies. While we remain convinced of the long term structural re-rating of US equities after such a period of outperformance it is prudent to question whether the next phase of gains will be made elsewhere. Yesterday Francois argued for buying EMU equities. However at the risk of offending Harry Truman (who famously asked for a one-handed economist), most of us at GaveKal believe that the better non US equity story lies in Asia, not Europe. First we should state upfront that recent outperformance does not necessarily imply future underperformance. Market prices are not mean-reverting. Companies (and therefore indices) have differential financial performance, which leads to differential share price performance. US companies have grown earnings faster and generated more profitable growth than their European and Asian counterparts, so their share prices have deserved to outperform. Since the start of 2010 US earnings expectations have risen +33%, whereas they have risen +26% in Asia ex Japan and have been flat for EMU companies. Return on equity is very high for US companies at 27%, whereas it is 19% in Asia and 14% in the Eurozone. So while US companies trade on higher forward earnings multiples (13.8x for USA vs. 11.8x for Asia ex Japan and 10.8x for EMU), these premia are more than justified by superior financial performance. Of course if future prospects change, then so will relative returns. In Asia, the structural picture is clearly favorable. We expect regional GDP growth to far outstrip that in the US and Europe over the coming years, and company earnings should follow suit. The cyclical situation is less clear, especially as Western demand for Asian exports remains weak, and China works through her economic and leadership transition. This
The Financial Markets
Interest Rates
Base Rates CCY USD GBP EUR JPY CHF 0-0,25% 0.50% 0.75% 0-0,1% 0-0,25% CCY/Period USD GBP EUR JPY CHF 1mth 0.23 0.53 0.08 0.14 0.01 LIBOR rates 2mth 0.33 0.57 0.12 0.16 0.03 3mth 0.41 0.68 0.17 0.19 0.05 6mth 0.71 0.93 0.45 0.33 0.16 1yr 1.03 1.41 0.75 0.55 0.36 CCY/Period USD GBP EUR JPY CHF 2yr 0.40 0.74 0.48 0.30 0.10 Swap Rates 3yr 0.47 0.76 0.58 0.30 0.14 4yr 0.58 0.85 0.75 0.32 0.21 5yr 0.78 1.00 0.94 0.37 0.32 7yr 1.20 1.34 1.31 0.51 0.59 10yr 1.67 1.86 1.72 0.80 0.96
www.marcuardheritage.com
Disclaimer: This information may not be construed as advice and in particular not as investment, legal or tax advice. Depending on your particular circumstances you must obtain advice from your respective professional advisors. Investment involves risk. The value of investments may go down as well as up. Past performance is no guarantee for future performance. Investments in foreign currencies are subject to exchange rate fluctuations. Marcuard Cyprus Ltd is regulated by the Cyprus Securities and Exchange Commission (CySec) under License no. 131/11.
uncertainty has weighed on Asian equity prices. On forward earnings, Asian equities trade at a larger than normal discount to their US peers. Should the concerns faced by the regional economies prove to be largely temporary (as we expect), the current valuation discrepancy would present a good buying opportunity for Asian equities. Europe however is a different story. With the Eurozone crisis serving as an enormous structural cloud over the economy, market cycles have compressed to short term booms caused by monetary stimulus and political agreements, and busts caused by their absence. Perhaps, as Francois argued yesterday, this cyclical pattern will disappear over the coming months, but this is a hell of a bet to make given both the track record of the European leadership and the magnitude of the problem that the Eurocrats have created. Thus, while the crisis persists, it is hard to view EMU equities as nothing more than a short term trade in which one should engage at moments of deep panic and extreme undervaluation. Unfortunately, this moment has probably passed: in the past three months EMU equities are up +11% (vs Asia ex Japan +5%), our European velocity indicator has moved back to its highs and, on a forward-earnings basis, EMU equities are priced in the middle of their recent trading range. The counter argument to this approach is that one should view EMU equities through a less cyclical lens, like price to book or price to sales. We agree that EMU equities are trading at much lower levels than their US counterparts, but they have always been "cheaper" on these measures, as US companies simply make more money from each dollar of assets or sales. Arguments that "the index is approaching a valuation floor of 1x P/BV", "the index has underperformed for years" or worse, "the politicians will solve the crisis soon", have all applied in Japan for years. We prefer to rely on experience rather than hope, so will bide our time on EMU equities until they get extremely cheap, or we get a long term workable solution. For all these reasons, we would rather overweight Asian equities then European equities today.
WORLD CURRENCIES PER US DOLLAR
CURRENCY EUROPEAN Belarussian Ruble British Pound * Bulgarian Lev Czech Koruna Danish Krone Estonian Kroon Euro * Georgian Lari Hungarian Forint Latvian Lats Lithuanian Litas Maltese Pound * Moldavan Leu Norwegian Krone Polish Zloty Romanian Leu Russian Rouble Swedish Krona Swiss Franc Ukrainian Hryvnia AMERICAS & PACIFIC Australian Dollar * Canadian Dollar Hong Kong Dollar Indian Rupee Japanese Yen Korean Won New Zeland Dollar * Singapore Dollar MIDDLE EAST & AFRICA Bahrain Dinar Egyptian Pound Iranian Rial Israeli Shekel Jordanian Dinar Kuwait Dinar Lebanese Pound Omani Rial Qatar Rial Saudi Arabian Riyal South African Rand U.A.E. Dirham ASIA Azerbaijanian Manat Kazakhstan Tenge Turkish Lira Note: AZN KZT TRY 0.7839 149.48 1.8177 BHD EGP IRR ILS JOD KWD LBP OMR QAR SAR ZAR AED 0.3770 6.1006 12042.90 4.0140 0.7053 0.2816 1501.00 0.3845 3.6408 3.7500 8.3677 3.6728 AUD CAD HKD INR JPY KRW NZD SGD 1.0275 0.9854 7.7562 55.5175 78.39 1132.98 1.252 1.2446 BYR GBP BGN CZK DKK EEK EUR GEL HUF LVL LTL MTL MDL NOK PLN RON RUB SEK CHF UAH 8390 1.5886 1.551 19.7268 5.9098 12.4042 1.2608 1.648 225.6 0.5517 2.7384 0.3405 12.43 5.7951 3.3194 3.5578 32.2832 6.6767 0.9524 8.1238 CODE RATE
Exchange Rates
Major Cross Rates CCY1\CCY2 USD EUR GBP CHF JPY 1 USD 1 EUR 1 GBP
1.2608 0.7931 0.6295 0.9524 78.39 0.7937 1.2008 98.83 1.5129 124.52 82.31 1.5885 1.2599
Opening Rates 1 CHF
1.0500 0.8328 0.6610
Weekly movement of USD
04.09
1.2576 0.7916 98.45 1.1961
100 JPY
1.2757 1.0118 0.8031 1.2150
CCY\Date
07.08
1.2359 0.7928 96.61 1.1966
14.08
1.2325 0.7853 96.57 1.1964
21.08
1.2323 0.7836 97.65 1.1963
28.08
1.2450 0.7887 97.63 1.1961
CCY GBP EUR JPY CHF
Today 1.5885 1.2608 78.39 0.9524
Last Week %Change 1.5788 1.2541 78.65 0.9577 -0.61 -0.53 -0.33 -0.55
USD GBP JPY CHF
* USD per National Currency
September 5 - 11, 2012
FinancialMirror.com
26 | WORLD MARKETS
Man Group debuts computer-driven bond fund
End of summer to bring volume; all eyes on ECB
Marking the end of the summer doldrums, Wall Street is likely to kick off September with heavy trading volume while it hopes that the European Central Bank will hint at further stimulus measures to boost the global economy
WALL ST WEEKAHEAD
On Friday, U.S. Federal Reserve Chairman Ben Bernanke said that the central bank stands ready to bolster the economy if necessary, although he stopped short of giving an explicit signal of more monetary easing. U.S. stocks rallied after Bernanke's speech to an annual conference of central bankers in Jackson Hole, Wyoming, with major indexes gaining more than 1% in the late morning session. At the end of the day the Dow Jones industrial average was up 0.7%, while the Standard & Poor's 500 Index was up 0.5% and the Nasdaq Composite Index up 0.6%. "This (Bernanke speech) was in line with what we were expecting. He left the door open but didn't announce anything explicit. He doesn't intend to front-run his own FOMC (policy)meeting," said Liz Ann Sonders, New York-based chief investment strategist at Charles Schwab Corp, which has $1.6 trln in client assets. Investors are now awaiting comments from European Central Bank President Mario Draghi after the bank's meeting on Thursday. Many investors will look to the ECB meeting to glean strong clues on what to expect from the Federal Open Market Committee's own policy meeting next week on September 12-13. "Between now and mid-September, we'll be focusing on the ECB, though the next FOMC meeting is also around the time that the German court meets, so we'll be getting news on both those fronts. Any news from Europe will drive markets more than domestic news, with the exception of the payroll report," Sonders said. The all-important U.S. non-farm payrolls report is due on Friday. With Bernanke citing poor improvement in the labor market as part of the reason the U.S. economy faces "daunting" challenges, Friday's data could be a game changer, according to market participants. In the euro zone, following the European Central Bank policy meeting on September 6, a German Constitutional Court will rule on the euro zone's permanent bailout fund on September 12, which may affect the ECB's bond-buying plans. But there was further uncertainty within the ECB over President Mario Draghi's bondbuying plan on Friday after German central bank chief Jens Weidmann reportedly threatened to resign, piling pressure on Draghi to mollify opposition. There are "growing hopes that Draghi has overcome Bundesbank opposition to announce a bond buying plan at next Thursday's ECB meeting," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. But "what Draghi may have put in front of Weidmann is the notion that no actual purchases may ever occur as long as the market understands what it is up against in terms of coordinated, decisive policy response from the ECB." ALL ABOUT THE JOBS In a holiday shortened week, with U.S. markets closed on Monday for the Labor Day holiday, Friday's employment report will be the final major economic report to affect the results of the upcoming meeting of the Federal Open Market Committee (FOMC). "Unless there is a sharp weakening in the labor markets, something our data do not indicate, the Fed will sit on the sidelines at the ready to act only if things get really bad," said Steve Blitz, chief economist at ITG Investment Research in New York. A Reuters survey forecast nonfarm payrolls rose by 125,000 for the month of August. In July, nonfarm payrolls added 163,000 workers, breaking three months of job gains below 100,000 and offering hope for the ailing economy. At the same time, a rise in the unemployment rate to 8.3% kept alive the possibility that the Federal Reserve could provide additional stimulus to the economy. "The Beige Book prepared for the September 12-13 meeting of the Federal Open Market Committee (FOMC) offered little evidence of a material improvement in broad labor market conditions through August 20," Wilkinson said. "Indeed, the trend in jobless claims has largely moved sideways over the summer. We forecast that total nonfarm payrolls increased by 110,000 in August, with the unemployment rate holding steady at 8.3%," he said. Other economic data this week include the Institute for Supply Management manufacturing survey and construction spending; non-farm productivity and labor costs on Wednesday; the ADP private-sector employment report and weekly jobless claims on Thursday. For the week the Dow was down 0.5%, while the S&P 500 was down 0.3% and the Nasdaq was down 0.1%. For the month, the Dow rose 0.6%, the S&P 500 gained 2% and the Nasdaq climbed 4.3%, its best monthly performance since February.
Hedge fund manager Man Group has launched a computer-driven fund that will try to make money trading government bonds despite the ultra-low yields on offer, the latest step by the struggling firm to try and revive its fortunes. The Nomura Man Systematic Fixed Income fund, which launched in July with $50 mln of external investor money, uses algorithms from Man's $16.7 bln flagship fund AHL to help it trade interest rate and bond futures, currencies and interest rate swaps around the world. The fund will seek to latch onto trends in prices; spot distortions in yield curves and benefit by their reverting to normal; and profit from higher interest rates in emerging market currencies if it judges market conditions favourable. The launch comes as hedge funds and other investors struggle to get to grips with ultralow sovereign bond yields and work out whether prices are over-inflated amidst the euro zone debt crisis. On Monday the German two-year yield was minus 0.004%. Man says the new fund, which can bet on both rising and falling prices, will target doubledigit returns. "Yields are also at extremely low levels. If you're (only) long bonds, you certainly know what your upside is," Sandy Rattray, chief investment officer of Man's Systematic Strategies (MSS) unit, which runs $2.2 bln, said in an interview. Last month AHL said it had built a new computer model to cap its exposure to bond futures for fear of big losses, should the market reverse abruptly. Rattray, who co-developed the VIX volatility index, also known as the "fear index" which is widely used to measure investors' perception of risk, added that it will benefit from the reduced competition from rival traders such as banks, which have been cutting their proprietary trading units. "This is an extremely clear example of where banks have reduced risk and funds ought to be stepping in to take risk. VARs (values at risk) from investment banks have come down in fixed income," he said. The launch comes as Man, whose share price has dropped by three-quarters since the start of last year on the back of client outflows and poor fund performance, tries to regain investor confidence and improve returns. In June Man Group dropped its finance director, while in July it announced $100 mln of cost cuts, its third wave of savings since a widely criticised purchase of rival GLG in 2010. Earlier this year Man announced the launch of the Man Commodities fund, also run by MSS, which uses algorithms to trade 25 commodity futures contracts and also allows human intervention.
Direct Line better after spin-off
Direct Line Insurance Group, stepping up a charm offensive with investors ahead of a planned stock market listing next month, said it expected to be more profitable after the flotation. Britain's largest motor insurer, an autonomous unit of Royal Bank of Scotland whose brands include Churchill and Green Flag as well as Direct Line, said it was setting a 15% target for return on tangible equity. That is up from 10.2% annualised ROTE reported for the first half of this year, although the insurer said its underlying ROTE would have been 12.1% after its raised 500 mln pounds in a debt issuance. It also said it was aiming to deliver 100 mln pounds in cost savings by the end of 2014. Direct Line paid a 200 mln pound dividend to RBS on Monday, having paid 800 mln earlier this year. "Other than some transitional services provided by RBS Group, we have essentially achieved the goal of operating as a standalone insurance company," chief executive Paul Geddes said. Analysts say it could be worth about 3 bln pounds, making it one of London's biggest listings for years.
Nomos profits rise as foreign banks exit Russia
Sweden's Handelsbanken is pulling out of Russia, the latest foreign bank to exit a market dominated by large state-owned lenders and mid-sized banks such as Nomos that are gaining ground. Nomos, the subject of a $2 bln takeover bid by Russian rival Otkritie Financial Corp, reported a 51% rise in second-quarter earnings helped by an increase in lending to consumers and businesses. Foreign banks and small Russian players struggle against statebacked lenders, such as Sberbank and VTB, which enjoy lower funding costs and have the lion's share of the domestic market. Handelsbanken, a tiny player ranking number 731 by assets in Russia, follows Britain's Barclays and HSBC and Spain's Santander which have either scaled down or shuttered their operations in the country. Non state-controlled Russian banks like Nomos have to be nimble to compete, targeting highly-profitable areas such as point-of-sale lending to consumers in shops and offering quicker decisions to those looking for loans. Nomos said its retail loans grew 14.7% for the second quarter versus the previous quarter while small business loans rose 19.8%. Its net interest margin - a measure showing banks' profitability on deposit and loan rates - was 5.2%, better than rival Vozrozhdenie but lower than market-leader Sberbank, which has a net interest margin of around 6%. Otkritie on Friday announced plans to take over Nomos, in a deal that would create the country's second-largest private lender. It wants to buy the 80% it doesn't already own. Otkritie Financial Corp is owned by its directors, state bank VTB and Anatoly Chubais, the architect of Russia's post-Soviet privatisations.
FinancialMirror.com
September 5 - 11, 2012
WORLD MARKETS | 27
September 5 - 11, 2012
FinancialMirror.com
28 | GREECE
Samaras sings in tune, now must hit the hard notes
When Jean-Claude Juncker, head of the euro zone's finance ministers, arrived in Athens last week, Prime Minister Antonis Samaras ran down red-carpeted steps to envelope him in a warm embrace. In front of the man representing Greece's biggest creditor, the governments of the euro zone, Samaras was understandably eager to make an impression, and duly pledged to do his utmost to win back Europe's trust. The conservative leader was not always so keen. Barely nine months ago he infuriated European officials by refusing to give his written backing to austerity policies demanded in return for the rescue funds that spared Greece from financial collapse. Given his history of dubious political choices that included voting against Greece's first bailout, Samaras has surprised many - including some officials among sceptical EU and IMF lenders - by trumpeting his resolve to push through cuts and reforms that have tripped up previous leaders. Deftly sidestepping pre-election rhetoric of an overhaul to the bailout and pledges to avoid across-the-board wage cuts, Samaras meekly promised to restore Greek credibility and promptly set to work on new austerity cuts that include plans for controversial labour reductions. Much of that appears tied to his determination to secure Greece's next tranche of aid of about 31 bln euros that is on hold, in the hope it will end constant speculation of a Greek exit from the euro zone and shore up its banks, ultimately setting the wheels of the depressed economy in motion again. "He is determined to adapt because he doesn't want the grenade to explode in his hands. And at the moment there is a risk that the grenade, in other words bankruptcy, will explode in his hands," said political analyst John Loulis. "He doesn't have a choice, because if that were to happen, apart from the disastrous effects on the country, his political career would be finished as well." Even then, whether Samaras manages to deliver will depend on how well he reins in fractious allies and whether his weak coalition can persist in the face of anti-austerity protests from Greeks who are already at boiling point. Samaras is to some extent basking in the reflected light of Finance Minister Yannis Stournaras, an economist well respected in Brussels, who is widely seen as having boosted the government's credibility. But Samaras also has to contend with the dark shadows cast by Socialist ally Evangelos Venizelos, a former finance minister who has attacked the bailout he helped draft after his party was pummelled in elections. "I'm a little concerned that Venizelos is behaving the way Samaras was in the (Lucas) Papademos government, when he was referred to as the `head of the pro-government opposition'," said Theodore Couloumbis of the ELIAMEP think-tank, referring to Samaras's half-hearted support of the previous government. "I think Samaras can deliver, but it's not up to him alone, because it's a tri-partite coalition." SKILFUL CHANGES The stakes could not be higher as Samaras embarks on his drive to reform a bloated public sector, step up long-delayed privatisations and push through nearly 12 bln euros of austerity cuts for the next two years. Fed up with Greece's repeated failure to reform, European leaders including German Chancellor Angela Merkel and French President Francois Hollande bluntly warned Samaras during a European tour last week that the country would get no further aid, much less the two additional years it is seeking to hit budget targets, unless he can show results. Without further aid, Greece will be staring at certain bankruptcy and a return to the drachma. A source close to the troika said Samaras's team had made a positive start by shifting the political debate away from populist promises made during election campaigning that appeared at odds with Greece's pledges to its lenders. "They've moved some of that behind them, and they've managed that quite well politically," the source said. Despite Samaras's election pledge to avoid firing public sector workers, the government has resuscitated the plan for a so-called labour reserve that earmarks civil servants to be eventually laid off, as part of the 2013-2014 savings plan. Campaign pledges to avoid cutting wages for "special" categories such as policemen and judges have also been ignored, and such cuts are back on the table. Samaras still has to convince Venizelos and his other ally, Democratic Left leader Fotis Kouvelis, to sign up to the entire package, and some of the proposals may be shelved. But despite weeks of wrangling, both allies say they broadly agree on the cuts and have signalled the package will have their blessing next week when troika officials arrive in Athens. In a bid to overcome the allies' concerns about protecting poor Greeks, the government wants to force those earning more to share a bigger burden of the cuts - from a 2% wage cut for low-wage earners to a 12-14% reduction for high-income earners. STUMBLING BLOCKS Far tougher for Samaras to pull off will be incremental structural reforms to make the economy more competitive and efficient, including overhauling its notoriously ineffective tax collection system. Greece has notched up some limited progress - deregulation in the trucking industry has pushed fees for licences down to about 2,000 euros each from as high as 180,000 euros previously. But efforts to open up other tightly guarded professions such as pharmacists have been repeatedly thwarted by powerful lobbies. Moves to streamline the public sector, which employs almost a fifth of the country's 4.2 mln workforce, are routinely blocked by unions who are quick to strike and point out that Greece's constitution bars firing civil servants. The government is also under pressure to show it can push through long-delayed privatisations, which the source close to the troika says is still among Greece's "biggest stumbling blocks". The administration quickly resolved the issue of troubled state lender ATEbank by handing it to rival Piraeus and now appears ready to settle the fate of another loss-making state-controlled bank, Hellenic Postbank, after saying it was not viable. But Greece is still a long way short of its targets for privatisation proceeds this year. "We need a quick win on privatisations," a government official acknowledged. "When we came to the government, we realised that we don't only have a financial deficit, but also a deficit of credibility, which is much more dangerous, because no-one would talk to us. The first step is to regain credibility."
Where Greece has fallen behind bailout pledges
Prime Minister Antonis Samaras's government has pledged to win back Europe's trust by stepping up reforms and pushing through austerity cuts promised in return for a bailout that spared the country from bankruptcy. Below are some areas in which Athens has strayed from its obligations and where the new government has made effort to make up some lost ground: ing state assets and licences in 2011, again below targets. The government admitted privatisations were 7-12 months behind schedule. It has appointed a new leadership team at the privatisation agency, vowed to speed up the asset sales programme and said it would make its first, significant privatisation this autumn. - 15 ministries should have been restructured by the summer to make the government leaner and more efficient. The new leadership said in late July it was merging 21 different state organisations. Hundreds more are expected to follow, along with an evaluation of public sector staff. - By the end of 2011, about 15,000 public sector staff were to have been transferred into a labour reserve, an ante-chamber for dismissals. Just 630 employees were put in the reserve. The new government initially said it would not fire any workers. Samaras has re-introduced the labour reserve plan as part of the austerity package, though details remain sketchy. - Athens had missed deadlines to lower the benefits awarded by some deficit-making state-run pension funds. The government said in July it would cut the lump-sum payments some pensioners get upon retirement by about 20%. - Despite some progress, several professions that were supposed to have been opened up to boost private sector employment, such as pharmacists and taxi drivers, have been liberalised partly or on paper only. - Greece missed a March deadline to liberalise the electricity sector. Private power firms still have no access to the coal deposits and hydro capacity of state-run utility PPC.
STATE ORGANISATIONS
TAX REFORMS
AUSTERITY PACKAGE
- Greece was to identify by June budget cuts worth nearly 12 bln euros for 2013-2014. Finance Minister Yannis Stournaras has worked out a draft austerity package that mainly involves cuts in pensions and public sector wages. The coalition's party leaders have broadly agreed on it but are still hammering out details to spare low-income earners and pensioners. - In the first seven months of the year, net tax revenues were 2.8 bln euros below target. Recession may exceed 7% this year, according to government forecasts, far deeper than a 4.7% estimate given in March, so Athens will likely miss a goal to cut its budget deficit to 7.3% of GDP this year from 9.3% in 2011, requiring even deeper cuts to meet deficit targets for the following two years. - The head of Greece's privatisation agency Costas Mitropoulos resigned in July, saying Athens would raise about 300 mln euros from asset sales this year, far below an original target of more than 3 bln. It raised almost 1.6 bln euros by sell-
- Tax reforms have been repeatedly postponed, first from September 2011 to March 2012 and then beyond the summer. A comprehensive tax reform bill is to pass parliament by the end of this year. - Progress in modernising tax administration and expenditure control, for instance by establishing a single authority for public procurement, has been slow and patchy. Steps against tax evasion and the prompt settlement of nearly 7 bln euros of arrears the state owes to private suppliers are behind schedule. - The capital needs of illiquid banks were supposed to have been assessed by February 2012. The previous government had committed to take a decision regarding insolvent state lender ATEbank by March 2012. At the end of July, the new government wound down ATEbank, transferring its healthy assets to local rival Piraeus Bank . Stournaras last week also effectively paved the way for the sale of another struggling lender, Hellenic Postbank. The exact terms for the recapitalisation of Greece's solvent banks will be finalised by end-September, he added.
PUBLIC SECTOR STAFF
ADMINISTRATION
STATE BENEFITS
TAX REVENUES
BANKS
CLOSED PROFESSIONS
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ELECTRICITY
FinancialMirror.com
September 5 - 11, 2012
GREECE | 29
Austerity package draft targets pensions, wages
Greece plans to further slash pensions, social spending and public sector wages to find the bulk of nearly 12 bln euros of savings required to satisfy lenders, according to a draft list of measures obtained by Reuters on Friday. The draft list includes a controversial plan to dismiss civil servants, a move that will test the cohesion of Greece's fragile three-party coalition led by Prime Minister Antonis Samaras. Even if political leaders agree on the measures, they need approval from EU/IMF inspectors who return to Athens next week. Depending on whether they deem the measures credible and verifiable, the inspectors will draft a report that will determine if the EU and the IMF continue to support Greece, allowing the country to avoid a messy default and possible exit from the euro. Out of almost 12 bln euros of spending cuts targeted in this latest round, 4.6 bln euros are earmarked from reduced pensions, 1.39 bln from health, 1.32 bln from state salaries and 1.27 bln from administrative costs. The list, obtained from a Greek coalition source, was formulated by the country's finance ministry and was submitted earlier last week for approval to the leaders of the three parties in the ruling coalition. Even though the leaders broadly agreed on the plan, they said that some measures still needed further work to make sure it did not disproportionately hurt the poor and needy. Samaras's junior coalition partners, the Socialist PASOK and the moderate Democratic Left, especially oppose across-the-board wage and pension cuts. They also oppose a so-called "labour reserve" scheme, under which up to 40,000 civil servants could be set for dismissal. Previous austerity packages have caused outcry and violent demonstrations. Under the weight of public reaction and defections from some of its own lawmakers, the country's Socialist government resigned in late 2011, making way for the two coalition governments that followed. Prime Minister Samaras has vowed he will do everything in his power to convince lenders he can implement the new cuts, and in return hopes to win his country more time to repay its debts.
THE AUSTERITY DRAFT
Below are the main points of the draft: PENSIONS Targeted savings: 4.6 bln euros. The cuts apply both to private and public-sector pensions. About 2.2 bln derive from abolishing holiday bonuses. These had already been heavily curtailed under a previous austerity package. Pensioners earning more than 1,000 euros a month are to see their incomes reduced by between 2 and 10%. Pensions have already been cut by about a quarter, on average, since the beginning of the debt crisis. HEALTH Targeted savings: 1.39 bln Most of this, about 800 mln euros, is to come from reducing the spending of social security funds on pharmaceuticals, by cutting the administrative prices of drugs. Greece has already reduced that kind of expenditure by about 1 bln euros under previous austerity packages. PUBLIC SECTOR WAGES Targeted savings: 1.32 bln About 360 mln euros are to come from cutting wages of policemen, judges, as well as military and state hospital employees. Greece's coalition partners had promised before a June 17 election that they would try to spare some of these groups from the cuts. Public sector wages have already been cut by about 30%, on average, under previous austerity packages. A controversial "labour reserve" scheme is expected to yield 167 mln euros in savings. Under this scheme, up to 40,000 civil servants would receive just a fraction of their current salaries before being dismissed at some later point. Greece's ruling parties had ruled out any dismissals before the election. WELFARE BENEFITS Targeted savings: 940 mln Family and disability benefits are to be reduced. Also, recipients will be re-examined to crack down on social fraud and make sure that benefits go to those who really need them. LOCAL GOVERNMENT Targeted savings: 735 mln DEFENCE CUTS Targeted savings: 517 mln The bulk of this - 437 mln - concern delaying arms payments. EDUCATION Targeted savings: 389 mln TAXATION Targeted savings: 450 mln euros Most of this concerns the reduction of tax breaks for social purposes and farmers.
Unpaid bills and higher costs hit PPC/DEH
Greece's biggest electricity producer PPC/DEH saw its first-half profit almost wiped out by unpaid bills, taxes and rising energy costs caused by the country's debt crisis. The state-controlled company reported net profit down 86% year on year to 18.3 mln euros, against an average forecast of a 5.1 mln euro profit in a Reuters poll of analysts. PPC more than doubled the amount of money it sets aside to cope with nonpayment of bills by austerity-hit customers, including the government, to 142 mln euros. PPC supplies almost all the country's homes and companies, even though it produces about 70% of the electricity generated. At the same time, PPC's bill for fuel and elecPPC wants the government to overhaul the country's inefficient, highly regulated electricity market, where some corporate users subsidise below-cost electricity prices for households. "Otherwise, the retail market can't open up to competition," PPC's Chief Executive Arthouros Zervos said in a statement. Steeper costs outweighed the effect of an 8.4% rise in sales to 2.9 bln euros after the company was allowed to increase its regulated power prices on January 1. Reducing the company's wage bill by 93 mln euros under austerity laws imposed by the EU and IMF also failed to boost profitability. Earlier in August, the government said it was contemplating five scenarios for PPC's privatisation: a) the sale of lignite-fired power plants corresponding to 40% of capacity; b) sale of power plants and sale of share in retail; c) the split of PPC into two utilities and the sale of one of them; d) sale or entry of strategic investor into PPC's transmission subsidiary; e) sale or entry of strategic investor into PPC's distribution subsidiary. The first two scenarios appear to be the ones with the higher chances, resembling Italian Enel's privatisation model, while the energy regulator RAE has proposed a transition measure based on the French model whereby which PPC would auction energy generated by its plants to independent power producers (IPPs) and retailers.
tricity generated by other producers soared by 53% to 519 mln euros including 84 mln paid under a market rule to boost the profitability of alternative private power producers.
Postbank shares plunge on viability concerns
The Athens stock exchange suspended trading in shares of state-controlled bank Hellenic Postbank on Thursday following a nearly 30% plunge in its shares after the government said the lender could not survive on its own. Winding down the deposit-rich Postbank, in which the government holds a 44% stake, has been a policy priority as it tries to revive its stalled privatisations drive and regain credibility with foreign lenders. The government has already transferred or wound down several lenders that were found beyond salvation, most recently agricultural lender ATEbank. Finance Minister Yannis Stournaras paved the way for the sale or transfer of Postbank to private investors, telling MPs it was no longer viable. "The finance minister's comment says it all," said Takis Zamanis, head of trading at Beta Securities. "The bank has negative equity and such an effect on the share is logical." While no group has expressed an interest in the lender, potential suitors include National Bank and Eurobank, Greece's two biggest banks which each hold a 6.1% stake in Postbank. There has been a flurry of activity in the country's banking sector, with Piraeus Bank confirming it was in talks to buy Societe Generale's local arm Geniki, while a three-way battle is under way for Emporiki, the Greek unit of Credit Agricole. Postbank has suffered from investing heavily in Greek government bonds, which left it with a huge capital gap despite its hefty deposits. The lender reported a 544 mln euro loss for the first nine months of 2011, the last time it published results.
Yield eases on T-bills
Greece sold 1.137 bln euros of six-month T-bills on Tuesday, mainly to Greek banks, with the yield easing from a previous auction in August, the country's debt agency said. The sale's bid-cover ratio was 1.95, down from 2.06 in the August 7 auction. Greece paid a yield of 4.54%, 14 basis points below the previous auction. The sum raised includes 263 mln euros in non-competitive bids. Monthly T-bill sales are Greece's sole source of market funding. Tuesday's auction will fund the rollover of a previous 1.4 bln euro issue that comes due on Friday.
Intralot in Russia
Intralot has fully taken over Kelicom from a 33% stake it previously held, thus gaining control of Favorit Bookmakers' Office LLC, one of the leading sports betting operators in Russia. Kelicom holds a strategic stake of 74,9% in Favorit. Ioannis Pantoleon, Intralot's Director of Finance and Business Development, said that the company has invested in the Russian regulated betting market and aims to become one of its major players. In March 2012, Favorit's 5-year license to run sports betting activities in the country was changed to a non-expiring license.
Hellenic Petroleum profit drop beats forecast
Greece's biggest refiner Hellenic Petroleum reported a smaller-than-expected profit drop for the second quarter, as cost cuts and robust refining margins outweighed a slump in fuel demand in the austerity-hit country. Net profit, adjusted for the value of the company's oil inventory, stood at 86 mln euros, down 7.5% from the previous year. That was higher than a 62 mln euro average forecast by analysts in a Reuters poll. Hellenic runs refineries and petrol stations across the Balkans but makes most of its profit at home, where fuel consumption has been hit by tax increases aimed at shoring up public finances. Fuel demand in the overall Greek market dropped by 12% year on year, the company said.
September 5 - 11, 2012
FinancialMirror.com
30 | CSE PRICES
CSE CODE OASIS Index performance CSE General Index FTSE/CySE 20 FTSE/XA & XAK Banking MAIN MARKET MAIN MARKET INDEX BANK OF CYPRUS CYPRUS POPULAR BANK HELLENIC BANK LOGICOM A. TSOKKOS HOTELS LOUIS LTD ORPHANIDES SECTOR TOTAL / OIKO PARALLEL MARKET PARALLEL MARKET INDEX WOOLWORTH (CYPRUS) PROP VASSILIKO CEMENT A&P (ANDREOU&PARASKEV.) ERMES DEPARTMENT STORES LAIKI CAPITAL PUBLIC CO K. ATHIENITIS CONTR. - DEV. G.A.P VASSILOPOULOS MITSIDES PHIL. ANDREOU LORDOS HOTELS HOLDINGS LIBERTY LIFE INSURANCE LORDOS UNITED PLASTIC SECTOR TOTAL / OIKO ALTERNATIVE MARKET ALTERNATIVE INDEX A. PANAYIDES CONTRACTING ALKIS HADJ. (FROU-FROU) A.L. PROCHOICE FIN. SERV. AMATHUS PUBLIC LTD ASTARTI DEVELOPMENT ATLANTIC INSURANCE BLUE ISLAND FISH FARMING CCC TOURIST ENT. CHARILAOS APOSTOLIDES CHRIS JOANNOU LTD CLARIDGE INVESTMENTS CLR INVESTMENT FUND CONSTANTINOU BROS. CPI ENTER. DEVELOPMENT C.T.O. PUBLIC CO CYPRINT LTD. CYPRUS CEMENT CYPRUS FOREST IND. CYPRUS TRADING CORP. CYVENTURE CAPITAL DIMCO PLC DISPLAY ART LTD ELLINAS FINANCE ELMA HOLDINGS EUROPROFIT CAPITAL EXELIXIS INVESTMENT FILOKTIMATIKI K & G COMPLEX KARAOLIS GROUP KARKOTIS MANUFACTURING KEO LTD KOSMOS INSURANCE KRONOS PRESS DIST. JUPITER PORTFOLIO INV. L.P. TRANSBETON LEPTOS CALYPSO HOTELS MALLOUPAS & PAPACOSTAS MINERVA INSURANCE MODESTOU SOUND & VISION NEMESIS CONSTRUCTIONS O.C. OPTIONS CHOICE PANDORA INVESTMENTS PIPIS FARM PETROLINA HOLDINGS PIERIDES HOLDINGS PRIMETEL PLC PROODOS AGROS RENOS HADJIOANNOU FARMS ROYAL HIGHGATE LTD SALAMIS TOURS SFS GROUP PUBLIC CO. STADEMOS HOTELS TOP KINISIS TRAVEL TOXOTIS INVESTMENTS UNIFAST FIN. & INV. VISION INTL PEOPLE GROUP SECTOR TOTAL / OIKO Number
Shares ('000) A� �
Nominal
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Book Value
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Profit/(Loss)
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Book Value 2010 Times EUR ('000) T� � . . .
6M 2011 EUR ('000) K 2011
6M 2012 EUR ('000) K 2012
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P/E ratio 2011 Results
Earnings Per
Share 2011 Cents
Dividend Per
Share 2011 Cents
Dividend Yield
%
2012 High Low EUR EUR A K
Last Close EUR K�
Price 31/12/2011 EUR T� 31/12/2011 295.94 104.60 196.84 286.83 0.61 0.30 0.36 0.27 0.05 0.04 0.12
% Change
since
31/12/2011 . . 31/12/2011
385.85 134.85 365.45
84.53 34.56 116.68 75.13 0.16 0.03 0.17 0.24 0.05 0.02 0.07
87.36 35.44 157.30 77.96 0.17 0.03 0.19 0.26 0.07 0.02 0.08
-70.48 -66.12 -20.09 -72.82 -72.62 -88.89 -47.09 -3.35 37.25 -43.24 -38.02
2010
BOCY CPB HB LOG TSH LUI ORF 1 795 141 3 411 086 579 914 74 080 246 214 460 547 80 966 1.00 0.10 0.43 0.35 0.35 0.17 0.35 299 789 112 566 110 764 19 261 17 235 9 671 6 072 575 358 1.25 0.00035 0.78 0.76 0.52 0.24 1.68 0.75 0.13 94.29 0.24 0.34 0.14 0.09 0.04 13.61 306 000 87 100 8 889 3 274 -17 397 -10 243 3 328 380 951
6M '11 161 000 -202 400 -36 618 2 904 -4 278 -28 751 1 062 -107 081 6M '11 3 010 1 038 448
-27 2 069 -1 021 258 -727 -414 -398 -383 3 853
6M '12 -214 000 -1 308 800 14 898 2 697 -5 955 -26 641 -5 040 -1 542 841 6M '12 1 535 1 906 386
-2 638 3 665 -570 -919 -448 -691 -1 747 -981 -502
2011
-1 371 000 -3 650 380 -100 658 3 585 -6 894 -82 674 -8 648 -5 216 669 n/a n/a n/a 5.37 n/a n/a n/a 0.18
Cents -76.37 -107.02 -17.36 4.84 -2.80 -17.95 -10.68
Cents
%
2.50
9.62
377.70 0.76 0.39 0.36 0.34 0.08 0.04 0.12
2010
FWW VCW APE ERME LI ACD GAP MIT PHIL LHH LIB LPL 114 252 71 936 182 725 175 000 282 213 13 416 38 750 8 200 45 000 35 000 122 804 48 006 0.34 0.43 0.17 0.34 0.27 0.35 0.17 1.03 0.17 0.35 0.10 0.35 114 320 32 371 30 881 23 625 16 651 6 037 5 115 4 756 4 365 4 060 4 421 2 640 249 242 1.76 3.07 0.28 0.45 0.26 4.69 0.30 3.16 0.09 1.91 0.05 0.53 1.38 0.15 0.15 0.60 0.30 0.22 0.10 0.44 0.18 1.08 0.06 0.77 0.10 0.35 8 848 1 310 4 108 6 309 -47 25 987 -1 903 2 574 -1 453 456 -8 419 71 37 841
2011
6 674 -1 174 4 122 245 -1 734 2 133 -1 600 -947 -1 333 759 -2 667 -1 302 3 176 4.57 n/a 7.49 96.43 n/a 2.83 n/a n/a n/a 5.35 n/a n/a 11.13
Cents 5.84 -1.63 2.26 0.14 -0.61 15.90 -4.13 -11.55 -2.96 2.17 -2.17 -2.71
Cents 5.80
% 21.72
704.24 0.34 0.57 0.20 0.17 0.07 1.10 0.18 0.65 0.10 0.12 0.05 0.07
573.37 0.26 0.35 0.16 0.12 0.05 0.28 0.13 0.57 0.09 0.08 0.03 0.05
602.33 0.27 0.45 0.17 0.14 0.06 0.45 0.13 0.58 0.10 0.12 0.04 0.06
656.6 0.32 0.35 0.18 0.167 0.06 1.00 0.18 0.63 0.10 0.08 0.05 0.06
-8.27 -16.30 30.43 -5.59 -19.16 -6.35 -55.00 -26.67 -7.94 -1.02 39.76 -23.40 -8.33
2010
APC FBI PROP ANC AST ATL BLUE CCCT CHAP CJ CLA CLL CBH CPIH CTO CYP CCC CFI CTC EXE DES DISP ELF ELMA ERP EXIN PES KG KARA KARK KEO COS KRO ARI TRB LCH MPT MINE MSV NEM OPT PND PIPF PHL PGE PTL AGRO FRH ROY SAL SFS SHL TOP COV UFI VIP 36 572 98 861 158 660 110 358 99 925 39 109 15 438 141 692 50 000 10 070 108 163 288 141 1 950 24 379 208 700 5 140 137 611 3 059 92 079 14 973 80 999 13 506 16 000 348 333 31 344 34 000 4 805 100 000 22 343 7 967 30 978 17 985 20 400 62 446 8 571 101 683 43 211 78 415 14 900 61 056 46 355 424 435 9 660 87 500 22 100 382 440 3 590 297 915 33 000 36 529 66 520 32 500 12 212 20 700 9 788 75 000 0.35 0.26 0.09 0.35 0.35 0.35 0.17 0.43 0.35 0.35 0.35 0.08 0.35 0.17 0.87 0.43 0.43 1.73 0.85 0.43 0.09 0.35 0.62 0.09 0.09 0.29 0.87 0.17 0.34 0.35 0.43 0.31 0.43 0.20 0.35 0.35 0.35 0.17 0.14 0.17 0.17 0.17 0.35 0.35 0.34 0.17 1.73 0.03 0.17 0.43 1.00 0.69 0.34 0.03 0.05 $ 0.10 6 217 17 795 3 173 9 932 4 996 25 812 2 933 7 085 3 000 201 4 327 2 881 137 7 314 6 261 1 336 20 642 3 824 31 307 2 096 7 290 810 5 600 6 967 627 4 760 1 778 12 000 447 956 12 391 1 799 12 036 4 371 1 971 6 101 8 210 784 149 15 875 464 33 955 773 62 125 1 547 22 946 5 421 2 979 1 650 2 192 4 656 7 475 3 175 414 196 75 000 491 158 0.88 0.49 0.02 0.49 0.02 0.73 0.80 0.49 0.12 0.42 0.39 0.07 -3.03 0.65 0.09 0.27 2.20 6.13 1.84 0.47 0.28 0.29 0.67 0.04 0.20 0.32 2.55 0.97 -0.05 0.09 3.55 0.41 0.68 0.36 0.41 0.80 0.64 0.10 0.02 0.50 0.004 0.20 0.18 1.31 0.40 0.01 3.35 0.04 0.12 0.48 1.59 2.36 0.41 0.04 0.11 0.20 0.66 0.19 0.36 1.11 0.18 2.27 0.90 0.24 0.10 0.50 0.05 0.10 0.14 -0.02 0.46 0.33 0.96 0.07 0.20 0.18 0.30 0.32 0.20 0.52 0.52 0.10 0.43 0.15 0.12 -0.43 1.28 0.11 0.25 0.87 0.20 0.56 0.08 0.30 0.10 0.43 0.52 2.50 0.41 0.44 0.54 0.17 4.88 0.45 0.25 0.42 0.13 0.04 0.10 0.64 0.50 0.18 5.08 0.57 1 767 4 363 -5 724 -1 339 -11 422 4 108 257 -6 512 1 542 -622 -3 641 -7 007 440 -157 1 211 -1 031 -6 432 568 13 270 1 157 2 183 -380 575 -5 602 -980 1 048 614 -1 668 -844 -738 -3 358 -760 969 -2 094 -501 -3 469 -1 746 -4 952 -594 5 981 -9 573 -9 238 313 8 617 11 -5 231 362 14 344 131 -9 983 1 165 -181 -25 -43 -330 -55 167
6M '11 840 1 121 -332 -2 979 -5 391 2 240 417 -3 664 -493 -189 -2 493 -2 739 -522 -6 805 -234 -3 125 -463 1 448 1 239 940 -210 215 -2 944 -111 -161 1 028 3 742 -940 -89 -6 279 323 276 -1 396 -173 -4 233 36 -761 -191 1 121 -419 -8 696 -426 4 281 -631 -2 464 -191 -347 234 1 094 -3 875 -787 -151 -16 -22 2 280 -34 463
6M '12 111 887 -325 -3 979 -16 719 1 457 455 -2 768 -1 487 -184 -3 871 -2 043 -665 -6 -186 -282 -2 970 -1 653 -1 778 43 597 -208 -684 -3 487 -75 -1 223 -210 -1 012 -1 393 -160 -2 674 -233 -1 095 -840 -196 -4 478 -964 -302 -140 888 6 -8 419 -311 2 536 -171 -2 165 -396 -372 -1 427 -1 506 -4 416 -1 074 -132 -133 -13 1 661 -70 184
2011
373 2 334 -2 594 -2 121 -6 400 2 306 570 -3 519 -7 900 -375 -3 942 -7 654 -4 006 -65 -3 921 -513 -4 630 -4 127 5 693 1 104 1 604 -526 -257 -212 -15 562 1 608 5 130 -2 198 -110 -3 948 -804 100 -1 392 -438 -6 299 1 345 -3 185 -281 2 076 -2 192 -16 880 -1 314 10 753 -868 -6 352 73 151 546 964 -19 100 1 577 -689 11 -37 2 753 -93 340
Cents 1.02 2.36 -1.63 -1.92 -6.40 5.90 3.69 -2.48 -15.80 -3.72 -3.64 -2.66 -205.44 -0.27 -1.88 -9.98 -3.36 -134.91 6.18 7.37 1.98 -3.89 -1.61 -0.68 -45.77 33.47 5.13 -9.84 -1.38 -12.74 -4.47 0.49 -2.23 -5.11 -6.19 3.11 -4.06 -1.89 3.40 -4.73 -3.98 -13.60 12.29 -3.93 -1.66 2.03 0.05 1.65 2.64 -28.71 4.85 -5.64 0.05 -0.38 3.67
Cents 0.91
% 5.06
740.44
660.99
7.00 1.20
10.61 6.32
4.00
15.38
1.90
2.68
2.00
8.70
670.40 0.17 0.18 0.02 0.09 0.05 0.66 0.19 0.05 0.06 0.02 0.04 0.01 0.07 0.30 0.03 0.26 0.15 1.25 0.34 0.14 0.09 0.06 0.35 0.02 0.02 0.14 0.37 0.12 0.02 0.12 0.40 0.10 0.59 0.07 0.23 0.06 0.19 0.01 0.01 0.26 0.01 0.08 0.08 0.71 0.07 0.06 1.51 0.01 0.05 0.06 0.07 0.23 0.26 0.02 0.02 1.00
738.87 0.17 0.16 0.02 0.10 0.05 0.83 0.21 0.07 0.06 0.02 0.05 0.01 0.09 0.31 0.05 0.32 0.18 3.20 0.32 0.17 0.09 0.06 0.38 0.02 0.03 0.15 0.48 0.12 0.03 0.14 0.70 0.09 0.65 0.09 0.23 0.08 0.19 0.04 0.01 0.21 0.01 0.11 0.08 0.52 0.06 0.06 1.62 0.01 0.08 0.09 0.10 0.23 0.26 0.02 0.02 1.00
-9.27 0.00 12.50 0.00 -10.00 0.00 -20.48 -9.52 -28.57 0.00 0.00 -20.00 0.00 -22.22 -3.23 -40.00 -18.75 -16.67 -60.94 6.25 -17.65 0.00 0.00 -7.89 0.00 -33.33 -6.67 -22.92 0.00 -33.33 -14.29 -42.86 11.11 -9.23 -22.22 0.00 -25.00 0.00 -75.00 0.00 23.81 0.00 -27.27 0.00 36.54 16.67 0.00 -6.79 0.00 -37.50 -33.33 -30.00 0.00 0.00 0.00 0.00 0.00
FinancialMirror.com
September 5 - 11, 2012
CSE PRICES | 31
CSE CODE OASIS Number
Shares ('000) A� �
Nominal
Value euro A EUR
Market
Cap. ('000) K. EUR
Book Value
Per Share euro
Price to
Profit/(Loss)
K.
2010 Book Value Times EUR ('000) T� � . . .
6M 2011 EUR ('000) K 2011
6M 2012 EUR ('000) K 2012
Profit/(Loss)
2011 EUR ('000) � .
P/E ratio 2011 Results
Earnings Per
Share Cents
Dividend Per
Share 2011 Cents
Dividend Yield
%
2012 High Low EUR EUR A K
Last Close EUR K�
Price 31/12/2011 EUR T� 31/12/2011
454.51 0.02 0.09 0.03 0.14 0.19 0.01 0.10 0.10 0.04 0.02 0.80 2.00 0.60 0.25
% Change
since
31/12/2011 . . 31/12/2011
APPROVED INVESTMENTS / EENYTIKOI OPAN. INVESTMENT INDEX ACTIBOND GROWTH FUND ACT APOLLO INVESTMENT FUND APOL FINIKAS AMMOCHOSTOU CONF CYTR CYTRUSTEES INV. PUBLIC CO DEMETRA INV. PUBLIC CO. DEM DODONI PORTFOLIO DOD HARVEST CAPITAL HCM INTERFUND INVESTMENTS INF ISCHIS INVESTMENT ISXI REGALLIA HOLD. & INV. REG TRIENA INV. INCOME TINC TCAP TRIENA INV. CAPITAL TRIENA INTERNATIONAL TINT UNIGROWTH INVESTMENTS UNI SECTOR TOTAL / OIKO SHIPPING COMPANIES SECTOR SPECIAL CATEGORY / AIANTAS INVESTMENTS AD SHOPPING GALLERIES A. ZORBAS & SONS CEILFLOOR CYPRUS AIRWAYS D.H. CYPROTELS D&M TELEMARKETING DOME INVESTMENTS EFREMICO HOLDINGS EMPIRE CAPITAL INV. FIRSTDELOS GROUP KANIKA HOTELS KARYES INVESTMENTS KNOSSOS INV. K. KYTHREOTIS HOLDINGS LASER INVESTMENT GROUP LIBRA GROUP OCEAN TANKERS ROLANDOS ENTERPRISES SAFS HOLDINGS SEA STAR CAPITAL STARIO INVESTMENTS SUPHIRE HOLDINGS USB BANK SECTOR TOTAL / OIKO MARKET TOTAL / OIKO AOPA AIAS AD ZRP CFL CAIR DHH TLM DOME EFR EMP ACS KAN KAR KNO KYTH LAS LHG OCT ROL SAFS SEAS STAR SUP USB
NAV 58 430 56 147 49 385 44 494 200 000 282 483 14 000 56 545 11 000 20 247 2 729 2 729 1 364 13 468 0.17 0.27 0.10 0.30 0.87 0.02 0.17 0.51 0.51 0.09 0.85 0.85 0.85 0.17 1 169 6 176 988 4 004 54 000 2 825 1 260 2 827 440 405 2 183 5 458 818 3 906 86 459 0.0379 0.2721 0.0048 0.2741 0.7502 0.0174 0.0674 0.1633 0.0734 0.0320 1.0430 2.1427 0.6125 0.2500
Disc/Prem
2010
-47.23 -59.57 316.67 -67.17 -64.01 -42.53 33.53 -69.38 -45.50 -37.50 -23.30 -6.66 -2.04 16.00 -760 -3 213 -2 533 -10 875 -15 581 -5 227 -6 -12 850 -112 -195 389 -446 -7 -127 -51 543
6M '11 -59 -1 207 -284 -3 086 -826 -2 488 -12 -3 619 -72 -75
6M '12 -43 -316 -705 -2 885 2 100 -1 489 -12 -873 -136 -82
2011
-737 -4 301 -1 465 -10 771 -14 687 -6 357 -255 -9 493 -165 -150 331 -136 -36 -303 -48 525
-43 -11 771
-241 -4 682
Cents -1.26 -7.66 -2.97 -24.21 -7.34 -2.25 -1.82 -16.79 -1.50 -0.74 12.13 -4.98 -2.64 -2.25 0.00
Cents
%
587.09
441.63
11.00
13.75
574.22 0.02 0.11 0.02 0.09 0.27 0.01 0.09 0.05 0.04 0.02 0.80 2.00 0.60 0.29
26.34 0.00 22.22 -33.33 -35.71 42.11 0.00 -10.00 -50.00 0.00 0.00 0.00 0.00 0.00 16.00
6M '11
6M '12
2010
81 202 128 936 15 296 5 055 391 155 157 138 7 700 25 000 11 385 47 853 72 562 60 250 2 000 21 827 42 450 61 739 189 377 296 665 54 166 70 220 629 785 38 581 124 009 60 674 0.21 0.17 0.34 0.03 0.086 0.17 0.12 0.43 0.43 0.87 0.34 0.35 0.43 0.17 0.17 0.06 0.01 $0.20 0.17 0.17 0.04 0.17 0.09 0.57 812 11 604 8 872 202 23 469 1 571 385 16 250 228 39 239 9 433 8 435 540 218 5 519 8 643 1 894 5 933 5 417 702 6 298 386 1 240 36 404 193 695 1 595 912 0.1767 0.06 2.40 -0.61 -0.12 -0.20 -0.05 1.30 0.086 0.05 0.29 0.67 0.2224 0.11 0.45 0.06 -0.38 -0.27 0.28 0.000 -0.06 0.05 -0.12 0.43 -94.34 1.50 0.24 -0.07 -0.48 -0.05 -1.09 0.50 0.23 16.40 0.44 0.21 1.21 0.09 0.29 2.47 -0.03 -0.07 0.36 33.33 -0.16 -0.08 1.40 -214 -3 960 1 846 -1 353 232 -31 800 -335 -1 938 221 -504 -2 203 -703 -180 774 999 -2 378 -7 100 -50 257 93 -173 -50 598 -1 062 -764 -6 534 -157 891 154 191 28
641
2011
-464
-132
-29 288 -4 033 -79 -449
-32 125 -4 345 -132 -588
-977 -75 369 -2 708 64 -12 257 -137 -3 801 -52 702 -202 164
-1 226 -57 -919 -2 452 -111 -12 535 -322 616 -54 792 -1 673 001
-27 -12 265 989 -1 856 -23 885 -9 100 -245 -701 35 -551 -2 754 -77 -180 87 612 -2 656 -11 700 -32 272 -328 -320 -16 501 -1 737 -60 -6 248 -121 740 -5 477 098
8.97
n/a
-0.03 -9.51 6.47 -36.72 -6.11 -5.79 -3.18 -2.80 0.31 -1.15 -3.80 -0.13 -9.00 0.40 1.44 -4.30 -6.18 -10.88 -0.61 -0.46 -2.62 -4.50 -0.05 -10.30
0.80 0.06 1.12 1.72
0.46 0.03
0.14
0.10
0.01 0.09 0.58 0.04 0.06 0.01 0.05 0.65 0.02 0.82 0.13 0.14 0.27 0.01 0.13 0.14 0.01 0.02 0.10 0.01 0.01 0.01 0.01 0.60
0.01 0.11 0.65 0.04 0.06 0.01 0.05 0.65 0.02 0.62 0.16 0.11 0.27 0.01 0.13 0.14 0.01 0.02 0.10 0.01 0.01 0.01 0.01 0.60
-18.18 -10.49 0.00 32.26 -18.75 27.27 0.00 -
source: Eurivex Ltd. PAT:Profit After Tax
NAV: Net Asset Value
Bold: Final results
EPS: Earnings per Share based on existing number of shares. P/E: Price to Earnings ratio. Weighted P/E ratio: Calculated based on market cap weighting of profit reporting companies, Book Value: According to our estimates. N/A Indicates Not Applicable, Price 31/12/2009 is the closing price or in case of New Listings the opening price. Ignores weighted number of shares in circulation Forecasted profits are liable to change without notice and responsibility
EMERGING MARKET (N.E.A.) FOCUS FINANCIAL SERVICES CONSTANTINOU BROS PROPERTIES CYPRUS LIMNI RESORTS & GOLF PHONE MARKETING S.A. ITTL TRADE TOURIST & LEISURE INT'L LIFE GENERAL INSURANCE SA ORCA INVESTMENT PLC P.C. SPLASH WATER PUBLIC CO. WARGAMING PUBLIC CO. ECHMI S.A. INVESTMENT CONSULTANTS EPILEKTOS ENERGY S.A. KERVERUS IT (CYPRUS) LTD C.O. CYPRUS OPPORTUNITY ENERGY TOTAL
CSE Code EXTE/EXTE /CBAM /LIMNI PHONE/PHONE /ITTL INLE /ORCA /PCSW /WG EXMI/ /EPIEN /KERV /GAS
No. of Shares (000) 1 690 1 950 300 000 1 575 100 000 8 057 1 200 35 052 3 400 321 10 906 1 810 8 390
Market Cap EUR (000) 11 830 36 855 300 000 5 513 75 000 21 834 14 280 42 062 3 400 1 611 43 624 2 552 13 844 572 405
Latest price EUR 7.00 18.90 1.00 3.50 0.75 2.71 11.90 1.20 1.00 5.02 4.00 1.41 1.65
Nominal Value EUR 0.30 0.01 0.10 0.30 0.50 1.00 0.01 0.25 0.10 1.00 0.32 1.00 0.01
Listing Date 29/3/10 29/3/10 29/3/10 29/3/10 06/8/10 21/7/11 10/9/10 10/10/11 2/11/11 10/04/12 28/06/12 29/06/12 17/07/12
WARRANTS EUROPROFIT (WAR. 2005/2012) ALKIS HADJ. FROU-FROU (WAR. 2015) AMATHUS NAVIGATION (WAR.07-2013) UNIGROWTH INV (WAR.10/12) TOTAL
EMERGING MARKET (N.E.A.) GreenTea SA Kappasquare Ltd Nugreat Ltd Zetadynamic Ltd
No. of warrants (000) 893 24831 17606 2218
Mkt Cap (00) 1 25 176 22 224
No. of Bonds 1 040 17 000 23 000 9 000
Exercise Period 41212 20-30 Jun 2001-2015 1-15 May & 1-15 Nov 07-13 1-15 Nov 2010 and 2012
Exercise Price euro cents
8.67 173 20c or EUR 35c 29
Expiry Date 30-10-2012 30-06-2005 15-11-2013 15/11/2012
Latest Close 0.001 0.001 0.010 0.010
CSE Code GRTEA KPSQ NGRT ZETA
Market Cap EUR 104 000 000 1 700 000 2 300 000 900 000
Latest price EUR 100 000 100 100 100
Listing Date 8 Nov 2011 30 Mar 2012 30 Mar 2012 30 Mar 2012
Latest NAV N/A N/A N/A N/A
Akcern Ltd
AKCN
2 001
200 100
100
9 May 2012
N/A
DISCLAIMER: The information, comments, analyses and financial data published in this newspaper were obtained from sources believed to be reliable, but their accuracy or completeness cannot be guaranteed and may change without notice. Any of the information or opinions published herein should not be construed as an offer or solicitation to buy or sell investments. No liability is accepted whatsoever for any direct or consequential loss arising from the use of this publication.
September 5 - 11, 2012
FinancialMirror.com
32 | BACK PAGE
Big credibility test looms for ECB and Draghi
G ECB may struggle to meet market expectations as data-driven Fed to watch job market,
purchasers' survey
GLOBAL ECONOMY WEEKAHEAD
If Mario Draghi manages on Thursday to satisfy financial markets while forging a political consensus on how to lower southern Europe's sky-high bond yields, the European Central Bank chief should be offered the starring role in the next Mission Impossible movie. Friday's U.S. job figures for August could be critical in determining how quickly the Federal Reserve acts on the promise of its chairman, Ben Bernanke, to ease monetary policy further if necessary to promote growth and a sustained recovery in the labour market. But, given the potential of the euro zone's malaise to cause a global financial crisis and recession, Draghi's news conference following an ECB policy meeting will be the highlight of the week and could set the market tone for the rest of the year. Draghi raised expectations so high with a pledge in late July to do whatever is necessary to preserve the euro that investors will be disappointed if they have to wait a bit longer for details of how the ECB's proposed bond-market intervention will work. Nick Kounis, an economist at ABN AMRO in Amsterdam, said the big risk was that Draghi would fail to dispel the doubts of the Bundesbank, Germany's powerful central bank, over the legality and effectiveness of buying Spanish and Italian bonds. The Bundesbank does not have a veto at the ECB, but its opposition could limit the scope and thus the credibility of a bond-buying programme. "It's difficult to be confident, but we do think on balance that he will come with something substantial," Kounis said. Another growing risk is that the ECB's prospective attaching a two-thirds probability to a quarter-point cut in the ECB's main financing rate, now at 0.75%. Unemployment in the 17-nation euro zone was a record 11.3 percent in July, and David Owen, an economist in London with Jefferies, said the gloomy economic picture would justify fresh monetary stimulus even if the spread between benchmark German bonds and other countries' debt was zero. In fact, investors buying 10-year Spanish bonds are demanding a risk premium of about 5.5%. "Whatever is announced at the ECB's press conference next Thursday, one should not lose sight of the bigger picture of a euro area economy sliding back into deeper recession," Owen said. The U.S. economy is doing a bit better, but growth is subpar and stagnation in the job market is a "grave concern" in the words of Bernanke, who spoke at a Fed conference in Jackson Hole, Wyoming, on Friday. Employers are expected to have added 125,000 non-farm jobs in August, down from 163,000 in July and far too weak to make a dent in the jobless rate, which is likely to have been unchanged at 8.3 percent, according to economists polled by Reuters. The Institute of Supply Management's monthly manufacturing survey on Tuesday will not give the Fed much encouragement either. Forecasters expect it to have edged up from 49.8 in July to 50 in August, the demarcation line between expansion and contraction. Lacklustre figures are bound to ratchet up speculation that Bernanke will press the Federal Open Market Committee, the U.S. central bank's policy-making panel, to provide fresh monetary stimulus when it meets on September 12/13. "The only questions are what form the easing will take and whether he can convince the rest of the FOMC to go along," said Kevin Logan, chief U.S. economist at HSBC.
conditions might prove too tough to lure Spain to swallow its pride and seek assistance from the European Stability Mechanism. The ESM, the euro zone's embryonic rescue fund, is expected to work alongside the ECB by purchasing peripheral countries' bonds when they are first auctioned. Conversely, Julian Callow with Barclays Capital said the conditions might not be applied strictly enough, taking pressure off governments to get their finances in order. "There is a danger that financial markets, which have already moved in anticipation of ECB interventions, may be disappointed by euro area developments," Callow said. SLUGGISH PAYROLLS Bond strategists at Deutsche Bank estimate that markets are pricing in bond buying of about 200 billion euros and are